El Salvador last week made crypto history as it became the first country to officially adopt Bitcoin as a legal tender. In a move that has sent Bitcoin supporters into a delightful frenzy, 62 out of 84 lawmakers voted to create a law that adopts Bitcoin as a means of payment in El Salvador. In the early hours of Wednesday 9th, President Nayib Bukele sent the bitcoin law to congress for a vote and in a tweet, later on, he said, “The #Bitcoinlaw has been approved by a supermajority in the Salvadoran congress”.
An excerpt of the law read, “The purpose of this law is to regulate Bitcoin as an unrestricted legal tender with liberating power, unlimited in any transaction, and to any title that public or private natural or legal persons require carrying out”.
The announcement of the vote saw the price of Bitcoin immediately jump by 5% to $34,239.
What this means for Bitcoin use in El Salvador
The Cryptocurrency known for its high volatility will now be used to pay tax contributions, prices of goods and services can now be shown in bitcoin and any exchange in bitcoin will also not be subjected to capital gains tax.
In a nation that depends a lot on money sent back home by its citizens abroad with about 25% of its population living in the U.S. In 2020, this 25% sent home more than $6 billion in remittances which accounted for more than 20% of the country’s GDP and with about 70% of its citizens not having bank accounts, the country’s millennial president, Bukele believes the adoption of Bitcoin has the potential to transform the way money is sent and received across his country’s borders.
According to the El Salvadoran newspaper, El Mundo, El Salvador’s Secretary of Commerce and Investment, Miguel Kattan said the U.S dollar will remain the country’s main currency. Goods will still be priced in dollars rather than in bitcoin. “Someone said yesterday, and I was laughing, how are you going to pay 0.00000001 bitcoin of tomato? How is that transaction going to work?” he said. “What you are going to pay is $0.20 that the tomato costs. Period.”
Even though it is not yet clear how the exchange rate will be determined, the government of El Salvador plans to set up a $150 million trust at the development bank of El Salvador to allow citizens to convert their bitcoins into U.S dollars.
Plans to use Volcanoes in mining Bitcoin
In an apparently overnight idea, president Bukele announced that El Salvador’s volcanoes could be explored as a renewable source of energy for bitcoin mining.
“I’ve just instructed the president of @LaGeoSV to put up a plan to offer facilities for #Bitcoin mining with very cheap, 100% clean, 100% renewable, 0 emissions energy from our volcanoes. This is going to evolve fast!” president Bukele tweeted. The idea behind using geothermal energy is that the volcano heats underground water thereby creating a powerful rush of steam that can be used to turn turbines and generate electricity.
Will other countries follow suit?
The decision by El Salvador to make bitcoin a legal tender is thought to be one that can open the floodgates to other countries formally recognising the currency. It is not yet clear yet if other countries will follow suit but on Monday, 14 June, Tanzania’s president Samia Suluhu Hassan, in a move that clearly signals its support for digital assets, directed financial figureheads to be prepared for the widespread adoption of cryptocurrencies in the country. The president in her directive said the Tanzanian Central Bank should “be ready for the changes and not be caught unprepared.”
This news further elevated the prices of Bitcoin and the Cryptocurrency gained almost 10% in 24 hours, almost reaching the $40,000 mark by Monday morning. The currency’s value also moved positively after the news that Tesla would resume its acceptance of Bitcoin when there is proof that the asset is mined using around 50% clean energy.
In some Latin American countries like Panama and Brazil, lawmakers are already expressing interest in following in El Salvador’s footsteps. Other countries on other continents may begin to adopt Bitcoin in the future and this will only increase the popularity of Bitcoin and other cryptocurrencies.