El Salvador, a country in Central America that is truly addicted to bitcoin and after the El Salvador Legislature adopted Bitcoin as legal currency in 2021, El Salvador was recorded as the first country to do so. El Salvador’s president, Nayib Bukele, believed that Bitcoin would be the key to support Salvadorans and their economy by attracting international investment. However, due to Bitcoin’s volatility in recent years, Bitcoin adoption in El Salvador has encountered many challenges.
The history of Bitcoin in El Salvador
The Colon (SVC) was the national currency of El Salvador from 1892 to 2001. However, on January 1, 2001, the US dollar became the national currency and this allowed the US dollar to circulate freely in the country. The Colon of course is still legal and can be used in El Salvador, but with the appearance of the US dollar, it is no longer in circulation and thus is rarely used today. But back when the US dollar appeared and was approved by the government as a legal currency, not everyone could access it because of the rapid change and also because the country’s infrastructure conditions have not adapted in a timely manner. Therefore, there are still some people in remote areas who do not have access to banking services and cannot use US dollars.
Back to Bitcoin’s story, it began when a $100,000 Bitcoin was contributed from an anonymous donor to El Zonte (a remote beach village of El Salvador), the donation came with the stipulation that the village adopt a circular economy based on Bitcoin. The hamlet of El Zonte embraced Bitcoin as a payment method in 2019 because many people who came to El Zonte didn’t have access to banking services so they had to use mobile devices and Bitcoin ATMs built in commercial areas to get Bitcoin. After that, El Zonte was known as “Bitcoin Beach” which attracted many tourists and of course the El Salvador government saw the benefit of Bitcoin so the history of Bitcoin in El Salvador begins.
El Salvador adopts Bitcoin as legal tender
As the Bitcoin Act was passed on 8 June 2021, Bitcoin in El Salvador now has legal currency status in addition to the US dollar. In other words, Bitcoin has been accepted as a form of payment for products, services and tax obligations, also, all contract obligations previously specified in USD can now be paid in Bitcoin. While El Salvador’s national currency remains the US dollar, the government still allows salaries and bonuses to be paid to public sector workers and suppliers in Bitcoin.
The future of Cryptocurrency and financial criminal rate in El Salvador
Many financial institutions and governments have expressed concerns that legalizing Bitcoin in El Salvador would benefit money launderers and other financial criminals who could take advantage of cryptocurrency-related legal loopholes. For example, high-tech criminals have begun to utilize cryptocurrencies to convert their illegal cash. They may now be able to do so more swiftly and conveniently in El Salvador. Similarly, the legal status of Bitcoin might make El Salvador a paradise for tax evaders and seriously harm the country’s worldwide reputation.
Therefore, Bitcoin adoption is an issue that can lead to many consequences for El Salvador, perhaps in the short term bitcoin can bring some benefits, however, in the long term the legalization of bitcoin and other Other cryptocurrencies will always carry an inherent danger. Lawmakers in this country should take a slow but steady approach to building appropriate legal frameworks for cryptocurrencies, avoiding a hasty approach that will lead to many insurmountable consequences.