El Salvador Bitcoin Emerging Economies

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The green shadow cast by the US dollar on developing countries is fading. In El Salvador, it is now approaching noon.

Growing up in El Salvador during its civil war, I never thought I would see my home country filled with so much hope for the future, let alone show the way for others. The recently passed government law making bitcoin legal tender is expected to take effect on September 7, making it the first country in the world to do so.

The catalyst for this bold move is Salvadoran President Nayib Bukele, a forward-thinking and entrepreneurial leader who has created a model for other countries to follow such as Paraguay, Mexico, Panama and Venezuela. . Bukele is the first president elected out of the two main parties since the Civil War, the youngest president in history (at 37) and he won on a modernization program. Bukele keeps his series of firsts alive by showing how bitcoin can improve the country’s financial system and showing other emerging countries a way out of the shadows of the USD.

A Brief History of Currency in El Salvador and Why Bitcoin is Supreme

Today, El Salvador does not have a national currency.

The colón, named after Christopher Columbus, was the currency of El Salvador but was discontinued in 2001 for the US dollar. The goal was to curb inflation and increase trade with the United States, an important trading partner. The tendency of developing countries to borrow in USD rather than their own currency is sometimes referred to as “original sin” because it reflects the fact that their currency is less accepted globally. Borrowing in USD allows developing countries to pay for essential goods that would otherwise be unaffordable. This concept, known as dollarization, occurs when a country’s currency loses its usefulness as a medium of exchange, due to hyperinflation or instability.

Cryptocurrency represents the modernization of democracy and level the playing field for underserved people. El Salvador’s adoption of bitcoin as legal tender gives hope to those who need it most, not only in El Salvador but also across the region.

By adopting bitcoin as legal tender, El Salvador is betting that eventually, bitcoin will be:

More globally accepted A deflationary medium of exchange A launching pad for El Salvador’s economic development

It has long been a challenge for El Salvador to develop new growth sectors for a more diversified economy. Bitcoin is a progressive path to achieve this goal by providing a sanctuary state to attract talent and increase GDP. For example, under the law, President Bukele encourages foreigners to obtain permanent residence in El Salvador if they invest 3 BTC in the country.

Bitcoin can fix remittances and banking

Bitcoin will work best as legal tender for several reasons.

El Salvador relies heavily on remittances, which account for 21% of its GDP, the second highest of any country in the Western Hemisphere. Bitcoin can make remittances easier by working with or removing middlemen and reducing the costs of overseas payments. Many critics of this approach refer to the high fees associated with the Bitcoin network that make remittances impractical, but they ignore the Lightning Network.

For example, sending a $ 10 payment within the Lightning Network would cost a satoshi (the smallest unit of a bitcoin, equivalent to 100 millionth of a bitcoin) to complete the transaction in one second. Other reviews refer to the difficulty of sending and receiving bitcoin. But trust me, I recently sent bitcoins to my mom in El Salvador with no issues. If my mother, who is 80, can do it, so can anyone.

In El Salvador, 70% of the population does not have a bank account. The unbanked face enormous challenges when it comes to saving and accumulating wealth. They also have to work behind the scenes as they are excluded from the mainstream of the local economy, which often leads to exploitation. By embracing bitcoin, they gain access to the local economy and beyond, on a global scale.

A new era for Bitcoin mining

It is no mystery that El Salvador is a developing country in search of economic growth. In the past, El Salvador produced gold and silver, but attempts to reopen the mining sector collapsed after former president Antonio Saca shut down the operations of Pacific Rim Mining Corporation in 2009.

With the emergence of the new ‘mining’ sector and the burden on the bitcoin mining community to institute more renewable energy standards, President Bukele plans to use geothermal energy from volcanoes.

This same entrepreneurial and fast-paced approach is also exhibited in the United States by Francis Suarez, the mayor of Miami, creating a sort of cryptocurrency hub. Indeed, more and more heads of government are using this method with the intention of attracting entrepreneurs who, in doing so, stimulate the economy.

Bitcoin’s obstacles around the turn

As with any change in law, especially when adopting a new call for tenders, there will be challenges. Think about what it took for the US dollar to get to where it is today. It took six decades, war and controversial bait and change tactics. The adoption of bitcoin will not be flawless, but it will be peaceful, transparent and enduring.

Bitcoin is still in its maturation phase and the whole world is still trying to figure it out, which takes time. Education is paramount.

Since bitcoin is a digital currency, it requires adjacent digital compatibility. In 2017 (the most recent survey available), only 37.1% of El Salvador’s population owned smartphones, highlighting part of the big tech gap requiring a bridge.

Although El Salvador takes a bold risk, its asymmetric advantage of adopting bitcoin as legal tender may change the world for the better. One thing is certain: the world is watching El Salvador. How many times in your life has this been true?

This is a guest article by Mario Gomez Lozado. The opinions expressed are entirely theirs and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.

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