Bitcoin’s fierce phase tries out a new bureau for El Salvador’s currency

Since the Salvadoran Congress approved bitcoin as its legal tender on June 9, the small Central American country has begun to aggressively pursue both bitcoin payments and mining.

On June 21, Salvadoran President Nayib Bukele reposted a video on social media of the country’s residents using bitcoin to make purchases, with the entire offline transaction taking just five seconds. Some statistics show that about 20,000 Salvadoran residents have used bitcoin to make transactions over the lightning network in recent weeks. Netizens took pictures of the large number of bitcoin ATMs being shipped to El Salvador.

Bitcoin is already the country’s fiat currency, and taking it for payment is just the beginning of what the country intends to do with the ‘printing of money’ from bitcoin, and the abundant geothermal resources are officially seen as clean energy that can be used for mining.

El Salvador’s experiment in using bitcoin as fiat currency has unfolded in a big way, but the bones of reality have come crashing down on it.

In a five-day period between June 16 and 21, bitcoin fell from $41,300 to $32,300, a 21.79 percent price contraction. Although El Salvador’s president has stated that he will set up a trust fund to support instant conversion of bitcoin to the U.S. dollar, analysts believe that the plunge could drain the country of dollars.

The experiment poses challenges beyond dealing with Bitcoin’s high volatility. Last Wednesday, El Salvador’s Finance Minister Zelaya said he had sought technical assistance from the World Bank to help it achieve the use of bitcoin as an official currency. But Reuters reports that the World Bank declined, saying it could not help El Salvador implement a bill related to bitcoin given environmental and transparency shortcomings.

After becoming the first country to ‘eat the crab’, the results of El Salvador’s experiment are fraught with uncertainty.

Bitcoin Payments and Mining El Salvador ‘Does It Both Ways’

As China clears Bitcoin mining, the Central American country of El Salvador, across the Pacific Ocean, is showcasing its geothermal resources, which it intends to use to introduce a Bitcoin mining industry.

Ruptly International Video Newswire released a video on June 18 showing images of the northwestern Salvadoran towns of Ahuachapan and El Zonte Beach, which are home to natural hot springs and volcanoes, where the steaming steam is a renewable and clean energy source.

Bitcoin mining analyst Salim Agata, who appears in the video, said the steam could drive turbines to generate electricity, similar in principle to hydroelectric power.

Bitcoin's fierce phase tries out a new bureau for El Salvador's currency

Image of geothermal power generation in El Salvador

Since the Salvadoran Congress approved bitcoin as the country’s legal tender on June 9, the small Central American country has begun putting the ‘printing’ aspect of bitcoin into practice. Earlier, Salvadoran President Nayib Bukele said the country’s state-owned company, LaGeo, is using clean, renewable energy from the country’s volcanoes to build bitcoin mining facilities, as El Salvador is located in the Pacific Rim volcanic belt, which is filled with hot springs and volcanoes.

El Salvador has ‘righted’ bitcoin as legal tender in the form of a bill that would allow the country to price goods in bitcoin, use bitcoin to pay taxes, and not face capital gains taxes on transactions in bitcoin, among other things.

In a video released by Ruptly’s international video newswire, some stores are shown with Bitcoin logos.

On June 21, President Nayib Bukele also retweeted a video on his personal Twitter account of a Salvadoran resident using a cryptocurrency wallet to scan a QR code provided by a merchant to receive payment, and five seconds later, the payment was completed.

The payment process looked smooth, but comments in Spanish (the official language of El Salvador) under the tweet suggested that people should be allayed with more explanatory videos about the use of Bitcoin, “We are not negative, but we need to learn more about this economic exchange.

How many people in El Salvador have actually experienced the country’s new fiat currency? Nicolas Burtey, co-founder of the lightning network infrastructure company Galoy, tweeted a set of numbers: In a recent week, about 20,000 Salvadoran residents used bitcoin to transact through the lightning network, paying a total of 13,879 sats (equivalent to $4.98) in transaction fees.

The payment infrastructure appears to be rolling out to El Salvador as well. Bitcoin analysts on Twitter Bitcoin Archive lit up a photo saying that a large number of Bitcoin ATMs are being shipped to El Salvador.

The small Central American country of just 6.705 million people is taking its fiat currency experiment with bitcoin extra seriously, but challenges have followed.

World Bank Rejects El Salvador’s Technology Request

Giving El Salvador a head start is the recent price of bitcoin.

Since June 16, bitcoin has fallen from a high of $41,300 in consecutive days, and as of 7 p.m. on June 21, it was quoted at $32,300, a 21.79 percent drop in five days. Some netizens flirted with the idea that “the entire nation of El Salvador was caught in a trap”.

The high volatility of bitcoin is indeed a problem that El Salvador has to face. To reduce the risk of volatility to bitcoin users, Salvadoran President Nayib Bukele has previously said that the government will set up a trust fund at the Salvadoran Development Bank to support the immediate conversion of bitcoin to U.S. dollars, which is about $150 million.

But analysts believe there could be a serious run on bitcoin if it plummets. Steve Hanke, an economics professor and Nobel laureate at Johns Hopkins University, even believes that Bitcoin could completely destroy El Salvador’s economy, as all of El Salvador’s dollars could be drained and they would lose their national currency.

On June 15, El Salvador’s Minister of Labor and Social Welfare Rolando Castro said that the government is currently discussing whether companies should pay wages in bitcoin. However, this statement seemed to be met with opposition, and just a day later, he tweeted again to clarify that he was not considering whether to pay salaries in Bitcoin and that such a means was premature.

In addition, Article 7 of El Salvador’s previously passed bitcoin bill states that “every economic institution” must accept bitcoin. And according to a survey by the Salvadoran Chamber of Commerce, only 4% of all businesses support this requirement.

According to Coin Metrics co-founder Nic Carter, it is far-fetched for El Salvador to force merchants to accept bitcoin payments. Economic transactions happen millions of times a day, and few countries have the ability or political will to impose this monetary transition on their people. El Salvador should reconsider Article 7 and allow Bitcoin to flourish on its own merits.

Clearly, the realities of how the corresponding monetary laws will accompany Bitcoin becoming a fiat currency in El Salvador, how it will be used by the population, and whether it will be accepted by merchants …… are all before the country’s government.

Bitcoin's fierce phase tries out a new bureau for El Salvador's currency

El Salvador’s President Nayib Bukele

These are just the “internal concerns” that need to be dealt with, the “external concerns” are reflected in how El Salvador uses bitcoin to conduct economic transactions with other countries, after all, the only country that has put bitcoin on a currency status is the country itself.

In a June 18 Reuters news release, El Salvador’s Finance Minister Zelaya said the country has sought technical assistance from the World Bank to implement its decision to use bitcoin as an official currency alongside the U.S. dollar. But the World Bank said it could not help El Salvador implement a bitcoin-related bill given environmental and transparency shortcomings.

In fact, not long after El Salvador’s bitcoin bill was passed, the International Monetary Fund (IMF) said it would “meet” with the country’s president, with IMF spokesman Gerry Rice saying, “The adoption of bitcoin as legal tender raises many macroeconomic, financial and legal issues that require careful analysis. We are closely monitoring developments and will continue to consult with the authorities.

In the view of Gonzalo Vila, a member of the Association of Certified Financial Crime Specialists (ACFCS), the social and security situation in El Salvador has recently improved, but significant risks and vulnerabilities remain. Legitimate companies could be used to divert dirty money from elsewhere through the financial system. “El Salvador’s embrace of bitcoin could open the door to ransomware hackers, money launderers and international criminals looking to cash in.

As the first country in the world to use bitcoin as fiat currency, this experiment in El Salvador is a real pressure. After being the first country to “eat the crab,” El Salvador needs time and action to prove that it can deal with the current problems with Bitcoin, and its decision is bold, but the results of this new fiat currency experiment still need to be verified.

Posted by:CoinYuppie,Reprinted with attribution to:
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