Cryptocurrency mining
Against all odds. The world's first country to switch to bitcoin. Where is this headed?
A small Latin American country has suddenly led a global financial revolution by making bitcoin the nation's currency. Salvadorans can now experience the delights of high-tech by paying for their morning coffee in cryptocurrency. The authorities seriously believe that the transition to bitcoin will give a strong impetus to the economy. Sceptics from the International Monetary Fund (IMF) and the World Bank, on the contrary, believe that such a risky move would only pose additional threats to the state. The Salvadoran authorities have also not taken the citizens' opinion into account - the numerous protests and public opinion have simply been ignored. See Lenta.ru's article on blockchain games.
Great expectations
Before El Salvador, no country in the world dared to recognize bitcoin as legal tender. Now cryptocurrency will have to be accepted by all organizations, taxes can be paid with it, and special wallets will be opened for citizens. The country's authorities have already bought almost $26 million worth of bitcoins (about 1.8 billion rubles), and are planning to buy more in the future.
To become a full member of the national bitcoin network, citizens need only download the Chivo app. Registration will open up access to a personal wallet, which will hold a welcome bonus of $30. Exchanging bitcoins into and out of dollars should not be a problem - the authorities intend to install 200 special ATMs, as well as to open an additional 50 service outlets. Now it is already possible to pay with cryptocurrency at McDonaldʼs, Pizza Hut and Starbucks.
According to the law, the bitcoin-dollar exchange rate is freely set by the market, the exchange is not subject to capital gains tax, and the government covers the cost of conversion fees. However, the law does not specify whether there are any penalties for non-compliance, and authorities say the use of bitcoin is not mandatory. It will be used alongside the dollar because the country does not have its own currency: in 2004 the national currency was decommissioned and the US dollar now circulates in the country. The reasons for abandoning its own money were high inflation, sharp fluctuations in the exchange rate and systemic problems in the economy as a whole.
The introduction of cryptocurrency to save the economy is being pushed by the country's president, Nayib Bukele. He believes bitcoin will help improve the lives of millions of people, given that almost 70 per cent of Salvadorans now have no bank account and 34 per cent of Salvadorans do not use the internet. A large proportion of citizens are employed in the shadow economy. Its prosperity is due to the country's geographical location: it is considered a transit point for drugs from South America to North America. On average, up to five tons of cocaine pass through El Salvador each year.
24
of El Salvador's GDP
is based on remittances from its citizens abroad
The country is also heavily dependent on remittances from abroad. Income from migrant workers accounts for almost a quarter of El Salvador's GDP (24 per cent, or $6 billion). But each remittance back home is subject to a fee, the authorities estimate the country's economy loses between $170 million and $400 million a year because of them. Bitcoin, on the other hand, should help solve this problem. "Financial inclusion is not only a moral imperative, but also a way to revitalise the country's economy and provide access to credit, savings, investment and reliable transactions," said the 40-year-old head of state, who has been dubbed the Millennial president.
El Salvador is totally dependent on US economic policy for its lack of its own currency, and it needs alternatives. "The introduction of bitcoin as official tender allows the Salvadoran authorities to provide citizens with an alternative to the dollar and thereby reduce the risks taken by the country's economy," said Valery Petrov, vice president of the Russian Association of Cryptocurrencies and Blockchain (RACIB) for market development and regulation.
In the long term, El Salvador could turn into a cryptocurrency offshore, Artem Genkin, director general of Consulting and Analytical Union, is confident. "There will be exchange rate differences and currency risks at the expense of economic actors. El Salvador's economy is obviously far from being the largest in the world. There are fewer of these economic actors than if a large country with a powerful economy had announced such a transition," he suggested.
However, the introduction of the new system has not been without problems. Despite preparations, users had trouble downloading the application, so additional servers had to be deployed.
Dangerous instability
Bitcoin's main problem is its volatility. The day before the law was passed, "couch investors" on Reddit decided to support El Salvador and began actively buying the cryptocurrency, pushing its value to $52,500 - the highest since May 2021. But their fervor didn't last long: on the same day, bitcoin plummeted to $46.8 thousand.