While the move seems to be positive for widespread adoption, there is a danger that the nation will not make bitcoin legal currency shortly. A sovereign country has accepted bitcoin as legal currency and as a kind of money that is not treated or taxed in the same way as a capital asset. The whole journey from the revelation in Miami to this point has been sloppy and confusing at times. However, it was clear from the beginning that this would be the case. It is worth noting that Bitcoin has never been in a position of this size in its whole history, even though it is constantly growing and developing. And before we move with our guide, we would like you to register yourself on the https://crypto-superstar.io/ and learn all about the safest ways to earn in a digital currency like Bitcoin.
Upon the launch of the Chivo Wallet application in app stores, every resident of El Salvador was eligible to receive a free $30 in Bitcoin, which they could use to purchase anything by the new law. It was the most prominent bitcoin airdrop in history, with over a million bitcoins distributed. The decision is up to each citizen whether to spend or hoard their sats; every company has the option of attempting to encourage individuals to spend their bitcoin by providing discounts or offers. Astute people and companies may offer a significant window of opportunity to prepare for the future by accumulating a stockpile of bitcoins and reinvesting in themselves and their enterprises as the value of bitcoin increases over time.
Because things have settled down and people have become used to dealing with bitcoin, the door has now been opened for remittances overseas to El Salvador via the Bitcoin network. As a result of the possible savings, El Salvador’s GDP may see a significant increase, as well as a reduction in the amount of money sent home by family members across the globe, which would otherwise be taken away by fees charged by companies such as Western Union.
Even though many Salvadorians who get remittances via Bitcoin rails prefer to receive them in the form of US dollars, I’m sure that many Bitcoiners will jump at the chance to dispute this issue with me. Some people have even voiced skepticism about the government’s motivations and abilities to carry this off successfully.
To understand how an application like Strike works, consider the following: User A is a native user of the Lightning Network, while User B has their bank account connected to Strike via a third-party service. If A wishes to pay B $50, they send $50 in bitcoin to Strike, which receives the bitcoin and converts it on their end to credit User B with the $50 they requested. It necessitates the exchange of bitcoin for fiat currency. Unless someone on the receiving end of the transfer is prepared to purchase the bitcoin and give the $50 that User B desires, User B will not get the $50 requested after sending the bitcoin. It is the same concept adopted in El Salvador with Chivo, except that the government is now the default buyer, allowing User B to get fiat currency in exchange. They created a Trust with a capital of $150 million to ensure the convertibility commitment, which is a critical component of requiring individuals to buy bitcoin.
El Salvador received $623 million in remittances from the United States in June of this year as a point of reference. The number of USD remittances flowing into the nation in a single month was more than four times the total amount of money held in the Trust.
The prospect of suspending the conversion guarantee and acceptance requirement would undoubtedly be a significant blow to the whole endeavor’s Trust. To raise more funds, they would have to seek loans from foreign lenders, which would need them to be rejected by the International Monetary Fund (IMF) due to their high debt-to-GDP ratio. As a result, finding additional purchasers on the foreign market to fulfill the conversion guarantee would be the only practical alternative left open.
With the passage of this law, El Salvador has reached a watershed moment in its history, one that has tremendous potential to benefit the country’s people. However, it also has a significant risk of failing to achieve those objectives, negatively affecting Salvadorans and Bitcoin itself. Last but not least, it is essential to note that, despite the frenzy of optimism and cries of “everything is wonderful for Bitcoin,” this is not a literal statement of fact. Bitcoin, like anything else in life, has its advantages and disadvantages.
Saeed Ashif Ahmed is a Blogger who has a keen interest in how emerging technology can help the world become a more just, equitable, and kind place. He enjoys interviewing CEOs of tech startups asking them what they are doing to bring greater opportunity and equity to our society.