Sunday, November 27, 2022

El Salvador’s Venture with Bitcoin

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Bitcoin is a global phenomenon, but its reputation taints. Obtaining and using cryptocurrency tolerates in many countries. Other countries banned cryptocurrency.

The first nation that embraced cryptocurrency is El Salvador. It is the smallest and most densely populated country located in Central America. It accepts formally as legal tender in the country. Some Latin American rule-makers suggested a course of action in the following suit. As a result, bitcoin’s reputation globally marks an intense change. 

Like other countries, El Salvador’s economy is primarily reliant on sending or receiving money as a payment. In 2019, remittances accounted for almost 20% of GDP. The blockchain, a public database, allows bitcoin holders to receive funds or make payments quickly and securely. Clearly, receiving money quickly is a critical need for El Salvador.

As of now, remittances regulates and have highly centralization, and delivers by Western Union and some transfer services. Sending and receiving funds involves complications. One of these problems is an in-person visit to their offices and having to have proof of identity for both parties. Having over 500 Western Union offices around El Salvador is not convenient, especially for those who are staying in rural areas.

Anyone who possesses a mobile phone can easily access cryptocurrency like bitcoin to send or receive funds regardless of their whereabouts. Wallet is a well-known software app that manages cryptocurrency when needed. Such apps encrypt on mobile phones and passwords or biometric mechanisms like fingerprints protect them before being accessed. 

An Internet connection needs by recipients in order to connect and have access to their funds. There are numerous ways to exchange cryptocurrency for cash after it receives. 

Crypto as a Legal Tender

Since El Salvador accepted cryptocurrency as legal tender, it’s taken one step further to provide an easy and fast way to transfer bitcoin. Just like the US dollar, cryptocurrency can also spend directly on goods and services. Other Latin American politicians are also looking at embracing bitcoin as legal tender. 

70% of the population of El Salvador is unbanking. It also means that they lack access to obtaining a basic bank account. It means that the country is facing problems when it comes to saving and accumulating wealth. 

There are two reasons why not owning a bank is discouraged. First, holding money in an old-fashioned way is risky. However, obtaining a bitcoin wallet is known for facilitating regular saving of small amounts over time, and savings guards by passwords or PINs. Second, savers who keep money in their banks are rewarded by earning interest on their money. There won’t be any investments without an incentive. That’s why other firms are allowing bitcoin investors to receive interest on their cryptocurrency, allowing the holders to satisfy with the services of bitcoin without having to own a bank account. Countries across Latin America have been trying to help the unbanked, yet one of bitcoin’s goals, which is effortless remittance, is seemingly a draw.

Drawbacks

As of today’s record, bitcoin has dropped roughly 50%, in contrast to April’s 2021 peak that reached almost US $65,000. Cryptocurrency is popular for its rapid change, of course. That is why embracing bitcoin as a legal tender always comes with its negative aspect.

Investors who control wallets that have a large amount of bitcoin named whales. Some alarms by the so-called whales because if a handful of whales decide to sell their bitcoin, the price will most likely affect and will drop tremendously, stirring everyone. As of now, there are almost 2,000 wallets that contain roughly 1,000 bitcoins each. The owners who control these wallets are unclassified. 

Another challenge that Salvadorians and other followers will face is the deflationary design inherent in Bitcoin. The supply of traditional currencies such as the US dollar may change depending on economic conditions. Central bankers in the U.S. manipulate the money supply to stimulate or slow the economy if needed. According to records, the supply of US dollars has increased to reflect population growth.

Bitcoin’s Future Value

At the time of this writing, roughly 2.2 million bitcoins are available to mine, and the total supply of bitcoin establishes already at 21 million coins. Prices that defines in bitcoin will unconsciously face a fall over time. 

Some analysts reckon bitcoin’s value will be high over time due to the acceptance of demand’s increase in the middle of supply’s downfall. If the bullish calculations are true, Salvadorians are in luck for adopting bitcoin early. That may result in the country’s becoming extremely wealthy. Records have shown that those who invested in bitcoin before 2010 consider lucky when it costs them less than one dollar. 

With its popularity, there are still unavoidable issues that will question bitcoin’s worth, like environmental impact. It is still not clear how this specific issue will solve. That is why the decision to adopt bitcoin as a legal tender should calculate. 

Adopting bitcoin as a legal tender comes with numerous risks. We can only wonder why El Salvador hasn’t considered the adoption of “Stablecoin.” Stablecoins like Tether have a final amount of one US dollar. It offers the security and rapid transmission speed of bitcoin, while removing its volatility for early adopters. 

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Rainy Naidoo
Rainy Naidoohttps://www.cryptoconstellation.com/
Rainy Naidoo is a writer for Cryptoconstellation. She has her Degree in Journalism and communications. Rainy Likes to spend her free time reading and exploring new places.
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