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What is the News?
El Salvador has become the first country in the world to adopt Bitcoin as legal tender. This means businesses should accept payment in bitcoin alongside the U.S. dollar, which has been El Salvador’s official currency since 2001.
Benefits of making Bitcoin as Legal Tender by El Salvador:
Reduce the cost of remittance transactions: Bitcoin will help El-Salvador save $400 million a year on commissions for remittances. The remittance flows in El Salvador are fundamental since they represent 24% of its GDP.
Financial democratization: The adoption of digital currency would democratize access to electronic payments, since more than 70% of the adult population of the country does not have a bank account.
More options for the consumer: The cryptocurrency could offer more options to consumers.
Potential to attract Foreign Direct Investment (FDI): El Salvador could attract FDI in payment platform developers, ATM manufacturers and bitcoin miners, among others.
What are the concerns of Making Bitcoin, a Legal Tender by El Salvador?
Carbon Footprint: El Salvador’s bitcoin plan has put a spotlight on the environmental impact of cryptocurrencies as extracting digital currency from cyberspace requires large amounts of energy, and the bitcoin industry’s global CO2 emissions have risen to 60 million tons equal to the exhaust from about 9 million cars.
Regulations: In the absence of a central regulating authority, legalizing bitcoin will have the potential for fraud and money laundering, high energy costs and extreme volatility.
Fluctuations in Bitcoin: There are doubts over how the country will avoid risks linked to sharp fluctuations in the digital currency, whose value can vary by hundreds of dollars in a day.
Source: This post is based on the following articles
- “In world first, bitcoin becomes legal tender in El Salvador” published in TOI on 7th September 2021.
- “El Salvador becomes first nation to adopt bitcoin as legal currency” published in Business Standard on 7th September 2021.