El Salvador becomes the first country to adopt Bitcoin as official currency

El Salvador’s Bitcoin law comes into force on Tuesday following its announcement in June, making the country the first to adopt cryptocurrency as legal tender along with the US dollar. On the eve of the implementation of the new law, El Salvador President Nayib Bukele announced the purchase of 400 bitcoins, worth around $20 million. Bukele has claimed the move would increase financial inclusion, investment and economic development; however, there have been protests against it, with many saying they do not know how to use the digital coin, Sky News reported.

Bitcoin, an alternative to government-backed money, exists only in computer circuits and memory. It’s based on data-scrambling cryptography — thus the term “cryptocurrency” — lots of processing power and a distributed global ledger called a blockchain, which records all transactions.

No central bank or other institution has any say in its value, which is set entirely by people trading Bitcoin. That independence and secrecy have made it a favourite of people suspicious of governments, as well as criminals trying to hide their transactions.

Other countries have dabbled in cryptocurrencies, but none has gone so far as El Salvador.

President Nayib Bukele, 40, has claimed the move would increase financial inclusion, investment, tourism, innovation and economic development. He added that the use of Bitcoin in the country will be optional, and salaries and pensions will continue to be paid in US dollars.

Foreign cryptocurrency enthusiasts have supported El Salvador’s move, with a movement stirring for people to buy $30 in the cryptocurrency together to mark the law coming into effect, potentially driving up the price.

Bitcoin is now trading at more than $51,000 its highest since May, when it fell sharply after China announced curbs on cryptocurrency transactions.

El Salvador has begun to install Bitcoin ATMs in cities around the country where citizens will be able to convert their digital tokens into cash, backed by a $150m government fund.

Polls have reported that most Salvadorans are opposed to the adoption of Bitcoin, despite the government pledging to provide $30 in the token to each citizen through a state-provided digital wallet.

In 2001, El Salvador’s own currency, the Salvadoran colon, was replaced by the US dollar.

The country depends heavily on money which citizens based abroad, often in the US, send home and these remittances to El Salvador were worth almost $6bn in 2019, amounting to 16% of El Salvador’s gross domestic product.

The country moved to using the US dollar as legal tender as a result of these remittances, and the move to Bitcoin is based on an expectation that more Salvadorans will begin sending money home using the cryptocurrency.

Featured image: Bitcoin Magazine

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