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There were two big news yesterday from El Salvador, leaving everyone to say that it will once again become the first country in the world to treat bitcoin as legal tender. First, the South American country has set September 7 as the activation date for its new currency. During the announcement, President Nayib Bukele clarified that the use of bitcoin will be optional, which could reassure those concerned about any coercive element of the law.
Even more interesting was the announcement early this morning that El Salvador will hand out around $ 30 worth of bitcoin to any citizen who activates a new state-backed crypto wallet called Chivo. This is a serious incentive in a country where the per capita income is around $ 4,000 a year.
This article is taken from The Node, CoinDesk’s daily recap of the most crucial stories in blockchain and crypto news. You can sign up to receive the full newsletter here.
But the amount might invite skepticism if you’ve been paying attention to bitcoin’s measurements in recent months. In April, the average fee for a single bitcoin transaction peaked at just under $ 63. The fees stood at or near $ 30 for two weeks at the end of April, during which time $ 30 in a bitcoin wallet would have been excessively slow or expensive to use for anything.
Fees on the channel have since fallen in dollars to less than a manageable $ 7, although they remain historically high. Bitcoin fees fluctuate because they are effectively set by a bidding process for block space. During times of high price volatility like April, speculators who need to move coins quickly may bid higher. Even in more stable times, the average BTC chain fees range from 50 cents to $ 2 to send any amount of money, which is very affordable compared to the fees of global transfer providers like Western Union, but still too much for today’s small, day-to-day payments in a poor country. (Credit card fees in the US are around 2%, which, to be clear, is in itself pretty crazy.)
On-chain transaction fees have often been exploited as a criticism of bitcoin. Systemically, of course, this is nonsense, as the fees are based on competitive offers. Saying bitcoin fees are too high, look how much people pay! is the logical equivalent of Yogi Berras’ famous joke about a popular New York restaurant: Nobody goes anymore, it’s too crowded.
That said, price competition between low-income and high-income users appears to be a real problem. Fortunately, users in El Salvador will have two mitigation options.
Most importantly, El Salvador’s bitcoin development partner Jack Mallers Strike offers low-cost bitcoin payments through the Lightning Network. Lightning is a layer two solution, built on and settling on the Bitcoin blockchain, but offering BTC transactions costing only fractions of a cent. In order for Bitcoin to function as a daily payment tool, Lightning, or something like that, is a necessity.
Remittances are a slightly different story. One of the interesting and lesser-known features of the Bitcoin network is that you can choose your payment fees based on how quickly you want a transaction to settle: high-fee transactions are taken first, but offers lower fees are usually blocked within a few hours. So for remittances, which can sometimes be less urgent than retail payments, this is a second option.
This raises a bunch of new questions about the El Salvador program, especially from an educational perspective. Country users will have to make a whole new set of rather complicated decisions about how to deal with it, and they deserve the options to be clearly defined. You can be sure that CoinDesk will closely monitor the progress of Strike and El Salvador.
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