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El Salvador’s Bitcoin adoption is fast becoming a nightmare for the government
In the year 2021, El Salvador has ushered in a new era of economic culture by introducing crypto coins for financial transactions. It is made a legal tender that can be used to buy anything from coffee to paying taxes. This move brought a sense of jubilation in the crypto community only to last for short time. El Salvador’s move to make Bitcoin a legal tender attracted scepticism from many experts. They fear that the volatile cryptocurrency can have a negative impact on the fragile national economy. Tech-savvy Salvadoran President Nayib Bukele is going all out to promote the increased adoption of digital currencies. But now it appears as if his initiatives are only yielding only unpleasant outcomes.
As Bitcoin was originally created to be a means of transaction outside the government control, El Salvador’s act of adopting it as a legal tender is raising many eyebrows. Since cryptocurrency can also be used for terror financing, its feasibility as a national currency is questionable. In addition, tasks such as building a new payment system take time, especially at the national level. The government needs many pilot projects to assess the difficulties which might arise after its full-time implementation and to educate people about the new system.
According to reports, almost 90% of Salvadorans opted for dollars instead of Bitcoin. Nearly 200 ATMs and 50 consulting centers from the government’s official digital wallet app-Chivo, were installed. Though users joined for a US$30 bonus, they stopped using it after spending or cashing out the coins. There was an inflow of identity fraud cases as there was no proper system in place to check identification for new users. These loopholes backfired into street protests in the country when El Salvador tried to make Bitcoin adoption compulsory.
Bitcoin bond, President Bukele’s new ticket for financial growth
Only six months after El Salvador became the first country in the world to adopt a digital currency as a legal tender, the government started scrambling for funds to repay and refinance expiring debt. Its sovereign bonds have fallen apart in the past year as Salvadoran crypto investors were worried that the budget deficit is insupportable. This 10-year ‘Bitcoin bond’ initiative is the key element that the government is trying to impose to meet these financial demands.
Recent reports have revealed that investors have committed a half-billion dollars to El Salvador’s upcoming Bitcoin bond. Almost half of the amount raised will be used to buy more Bitcoins to meet the existing demands, while the rest for funding the geothermal-powered Bitcoin City that the President plans to build near Conchagua volcano; hence the nickname, Volcano Bonds.
Bitcoin’s era comes to an end in El Salvador
Given the fact that most of the national citizens did not compulsively wish for Bitcoin as legal tender, the ones who are not as digital savvy might run the risk of forgetting passwords, and as nearly most of El Salvador’s population might not get access to the internet in the first place, it might seem quite obvious El Salvador will fail in its attempt to legalize Bitcoin. But if it does, the country will not only reign as the Bitcoin leader of the world but also bring a myriad of new opportunities for the Bitcoin cryptocurrency.
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