El Salvador is First to Use Bitcoin as Legal TenderOn Wednesday, June 9, El Salvador made history by becoming the first country to authorize the use of bitcoin as legal tender. President Nayib Bukele’s proposal to utilize the currency was widely popular in Congress. The votes came to 62 out of 84 in favor of instating a law to adopt bitcoin as the country’s legal tender. The introduction of bitcoin will greatly help the facilitation of remittances sent back home from Salvadorians living abroad. This is important as one in four Salvadorians live abroad. In addition, more than $2 out of every $10 in the country’s economy comes from remittances. Therefore, incorporating bitcoin as legal tender should only improve access to financial resources throughout El Salvador’s marginalized communities. Shortly before the bill was passed, President Bukele tweeted about the economic benefits of having bitcoin as legal tender: “It will bring financial inclusion, investment, tourism, innovation and economic development for our country.”

The Benefits of Bitcoin

The authorization of bitcoin as legal tender may be a developing trend across emerging economies. This is because bank penetration and access to traditional financial institutions are remarkably low. In El Salvador, more than 70% of the population lacks any connection to traditional financial services. It is due to these circumstances that Salvadorians have found themselves so reliant on remittances. In the past year alone, remittances contributed a fifth of El Salvador’s total GDP. With the domestic economy so dependent on remittances, it is clear why Bukele would craft a bill intended to ease the process for sending money back home from abroad.

Through cryptocurrency, Salvadorians will be able to send money to impoverished loved ones at a much affordable and quicker rate. No longer will those working in the global north have to rely on remittance firms. Rather, converting local currencies to and from bitcoin requires only an informal broker.

President Bukele will use significant domestic resources to help train the Salvadorian population to carry out bitcoin transactions. El Salvador’s commitment to cryptocurrency will not only forecast the future relevancy of cryptocurrency but act as a case study for other emerging economies that may be interested in eventually adopting bitcoin as legal tender. “The market will now be focused on adoption through El Salvador and whether other nations follow,” said Richard Galvin of crypto fund Digital Asset Capital Management. “This could be a key catalyst for bitcoin over the next two to three years.”

Moving Forward

In the past, people have criticized bitcoin mining for its harmful environmental footprint. However, El Salvador has made a concerted effort to ensure its bitcoin operation uses complete renewable energy. President Bukele has repeatedly stated that El Salvador’s state-run geothermal energy mechanisms will convert power derived from volcanoes for bitcoin mining. Scorching steam generates the power that can spin turbines and generate electricity. Going forward, bitcoin holds enormous potential in driving renewable energy projects across the world, especially in emerging economies.

– Conor Green

Photo: Flickr

cryptocurrency in AfricaCryptocurrency in Africa has become increasingly popular over the last couple of years, as many people become more interested in the possible economic benefits that can come from the new technology. Cryptocurrency is entirely digital money that uses a decentralized system. As a result, there is not one entity with complete authority over the process. The whole system works over the internet allowing transactions to happen anywhere in the world with no government regulation. Bitcoin, created in 2009, is the leading cryptocurrency company in Africa. There are a variety of users, from individuals to small businesses, that use the technology for investments, banking and payment transfers across borders.

Why Cryptocurrency is So Popular in Africa

In April 2019, Google Trends data showed that Nigeria had the world’s most searches for Bitcoin. Also in 2019, South Africa has the highest volume of cryptocurrency ownership compared to internet users. It was found that 10.7% of internet users in South Africa owned Bitcoin compared to the worldwide average of 5.5%.

In 2020, despite the global economic uncertainties, COVID-19 brought by businesses closing and people not working, Bitcoin trading has continued to increase in Africa. In May 2020, Nigeria had the highest trading volume in one week at $7.2 million, its third-best P2P trading week. Kenya was second with another record week by trading $1.6 million. South Africa came in third exchanging $1.1 million in a week.

Cryptocurrency in Africa mainly gained wide popularity because of high inflation rates across the continent. In 2018, South Sudan saw rates of 83.5% compared to the previous year. Other countries like Nigeria, Ghana and Zimbabwe, who printed $100 trillion notes worth only $40 in 2015, also experienced double-digit inflation rates. These hyperinflation rates had many citizens doubting the economic services of their central banks and governments.

Benefits of Cryptocurrency

In an effort to protect their money from the economic turmoil in their country, Africans started transitioning to Bitcoin. Since companies like Bitcoin have no single domain, the money inside the company is not affected by a single country’s inflation rate, which allows the citizens of African countries to protect their money from a failing economy. As a result, trust for these cryptocurrency companies builds.

Cryptocurrency in African also gives its people the ability to make cross-border payments. Some African countries have a history of fraud which had caused problems with international money transfers. In Nigeria, PayPal banned citizens from receiving money from other nations because of the country’s problems with fraud. However, cryptocurrency allows these citizens to transfer and receive money from anywhere around the world without the high fees that other money transfer companies usually have.

Cryptocurrency companies are blockchain technology that stores public records in a decentralized system. This also makes it impossible to alter transactions and assets. Many African countries use this new technology, through companies like Bitcoin, to elevate their status. They also use this technology to continue pushing their economy up to a level playing field with other nations. In 2019, Kenya and Nigeria announced plans to work more closely with these companies. These countries hope that by regulating cryptocurrency companies and their technology, the governments can begin bringing its people out of immense poverty and start becoming a greater global power.

– George Hashemi 
Photo: Flickr