Bitcoin has become legal tender – El Salvador’s dive into DeFi
President Bukele proposes bill to implement Bitcoin as legal tender side-by-side with US-Dollar
UPDATE: Congress has now voted to pass the bill, adopting Bitcoin as legal tender. 62 out of 84 votes were cast in favour of the decision.
El Salvador is likely to adopt Bitcoin as legal tender, making it the first country in the world to do so. Only Japan had made a similar move in 2016, giving cryptocurrencies in general the status of being legal tenders. However the Salvadoran path differs in not only allowing transactions using crypto, but even encouraging and offering them specifically in Bitcoin. President Nayib Bukele, leader of the populist New Ideas party, announced his proposal of the bill in a video broadcast to the Bitcoin 2021 conference in Miami last weekend.
Both Bukele and the media treat the decision as set in stone, since Congress is controlled by the president’s party. This modernization will not get rid of the US-Dollar as the country’s legal tender, but instead introduce both options side-by-side.
The project will be realized in collaboration with the payment platform Strike. Strike’s mobile payment app for crypto quickly became the number one downloaded app of the country. “This is the shot heard ‘round the world for Bitcoin”, Strike founder and CEO Jack Mallers said at the conference in Miami, according to Al Jazeera.
While some countries, i.e. the UAE, had a very positive stance towards DeFi, the step of El Salvador to use Bitcoin as a legal tender is unprecedented and has caused global excitement. Bitcoin’s high volatility had created an image of the crypto being nothing more than an asset. El Salvador’s move has changed that image with an expected mass adoption to come soon, marking a new approach to digital currencies. As opposed to DeFi, the global trend of monetary modernization had overall favoured CBDC.
However it might not be the last economy running on DeFi. Brazil, Argentina, Paraguay, Panama and Nicaragua are all considering the Salvadoran way for their countries. Bitcoin has been popular in Latin America for a while now, with crypto rushes having ocurred in Peru and Argentina lately.
The decision was made regarding several beneficial aspects. 70% of Salvadorans do not have bank accounts, relying heavily on an off-the-grid economy. By providing a digital currency accessible via mobile applications, more citizens will be able to re-enter the legal market and be less dependent on cash.
Additionally, more than two million Salvadoran citizens live outside the country, sending back more than $4bn in remittances each year. That is 20% of El Salvador’s GPD, making the economy dependent of these remittances. Currently these face transfer fees and lengthy waiting times, which would both be cut using Bitcoin.
The details of the implementation plan are yet to be announced, as well as the time span in which the project might be realized.
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