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For many in the broader crypto and fintech industry, June 9, 2021 will go down in history as a pivotal moment.
When El Salvador announced that it would become the first country in the world to officially accept Bitcoin (BTC) as legal tender, it was a landmark move for the crypto industry as a whole.
The news also arrived much earlier than expected. But what will this bold move mean for the future of crypto adoption?
With many governments still skeptical about the cryptocurrency, it is possible that this move could prompt other countries to step up talks in order to keep up with the evolving economies.
Cryptocurrency as legal tender: the impact
There is no doubt that cryptocurrency offers a plethora of benefits, including faster transactions and lower transfer fees. Particularly for El Salvador, where around 70% of the country is unbanked, this could be of tremendous benefit to ordinary citizens.
President Bukele says[LW1]that the switch to Bitcoin will play a vital role in enabling unbanked people to access credit, savings, investments and secure transactions.
However, some argue that the real draw may not be for those already living in El Salvador, but for crypto enthusiasts looking for a crypto heaven.
Bukele said he wanted to help entrepreneurs adopt El Salvador as their crypto base, by pledging that BTC holders would not be subject to capital gains tax. The potential to attract crypto-friendly entrepreneurs will likely be a key factor for other countries considering the same move, especially as many economies are struggling to recover from the pandemic.
This trend is already showing in other Central and South American countries and could be the start of a domino effect as they begin to adopt BTC as a national tender. Since the announcement, officials from Mexico, Paraguay and Panama have all shown similar aspirations to integrate Bitcoin and other cryptocurrencies into their national economies.
Why should Bitcoin be legal cryptocurrency?
In some ways, it’s very clear why El Salvador chose BTC.
It is by far the most popular cryptocurrency. It is estimated that 100 million people around the world own a certain amount of BTC, so it is an obvious choice as the first crypto to be adopted as the national currency.
On the other hand, many skeptics have found it surprising that a cryptocurrency known for its volatility is adopted before a stablecoin.
Stablecoins are either directly or indirectly centralized, which means that they are either pegged to a traditional currency or backed by some sort of tangible asset. This makes them much less volatile, while providing the same benefits as a decentralized cryptocurrency such as Bitcoin, Ethereum, or Nano.
For these reasons, one could argue that stablecoins seem the most logical candidate for official adoption.
Of course, with cryptocurrency being relatively new to mainstream media, it’s no surprise that stablecoins are relatively unknown. A recent study by Wirex and the Stellar Development Foundation found that only 25% of crypto users have heard of stablecoins, suggesting that they are not quite ready for full adoption.
Bitcoin, on the other hand, has been making headlines lately thanks to Elon Musk and international brands such as Paypal and Mastercard.
An important step for Bitcoin
El Salvador’s decision is undoubtedly an exciting step for the crypto industry and dispels any rumors that the cryptocurrency is not here for the long haul.
All eyes will be on the nation in the coming months to see the reality of a country that has fully embraced cryptocurrency, and we will likely see many more countries follow suit in the hopes of not being left behind. for account.
Main image credit: City of San Salvador, Getty Images
About the Author: Pavel Matveev is the CEO of Wirex, the London-based fintech responsible for the Wirex multi-currency payment card that makes crypto and traditional currencies equal. He is also a blockchain entrepreneur with substantial financial / business knowledge and over 10 years of investment banking experience.
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