In September 2021, the Central American nation of El Salvador became the first in the world to recognize Bitcoin as a currency with parity to the U.S. dollar. Since adopting Bitcoin, the small Central American nation has witnessed a substantial increase in cryptocurrency usage. Many businesses and individuals now accept Bitcoin for everyday transactions, including payments for goods and services.
President Nayib Bukele rushed through legislation known as the Bitcoin Law, mandating every business in El Salvador to accept Bitcoin transactions. For Bukele, bitcoin offered opportunities to sidestep likely U.S. sanctions and a way to fund infrastructure projects without going to the International Monetary Fund.
The government-issued digital wallet, called Chivo. The country rolled out an extensive network of Bitcoin ATMs, making it easier for citizens to buy and sell cryptocurrency. This widespread accessibility contributed to a rise in financial inclusion, allowing previously unbanked individuals to participate in the digital economy. Bukele gambled over $375 million on the country’s new bitcoin payment system. It flopped. Chivo users were offered a $30 signup bonus, which most withdrew from ATMs before deleting the wallet from their phones.
El Salvador later announced ambitious plans to create a futuristic city called "Bitcoin City" near the Conchagua Volcano. This city aims to be a hub for cryptocurrency enthusiasts, boasting tax incentives, cutting-edge technology, and blockchain-based governance systems. Half the takings from the $1 billion bitcoin-backed bond will go towards buying more bitcoin. The other half will be used for infrastructure and bitcoin mining powered by geothermal power from the Conchagua volcano. As well as the offer of permanent residency for just three bitcoins, foreign settlers to Bitcoin City will be free of income and capital gains tax.
El Salvador's commitment to Bitcoin goes beyond just adoption. The nation is harnessing its abundant geothermal energy resources, derived from its numerous volcanoes, to power cryptocurrency mining operations. This sustainable approach to mining helps reduce the environmental impact often associated with Bitcoin mining.
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Much of the inherent risk of President Bukele’s decision to change El Salvador’s national currency to Bitcoin is tied to the volatility of cryptocurrency. Crypto markets are highly speculative in their current state, the price of Bitcoin and Ethereum rise and fall regularly, and alt-coins are prone to completely disappear overnight. Bukele is betting heavily on Bitcoin adoption and the financial rewards for El Salvador that would come with that. However, it appears Bukele’s ulterior motive may be to use Bitcoin to drive the tourism industry in El Salvador.
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It’s possible that El Salvador’s transition to Bitcoin use is a short term play to capitalize on the current crypto craze, and the vast amounts of money flooding into not only Bitcoin, but NFT’s and DeFi Games as well. Bukele’s plans to erect a neofuturistic Bitcoin city could establish El Salvador as a major tourist destination, regardless of the future outcome of Bitcoin or crypto as a whole. His policies could enable much of this to occur using foriegn money, however it’s equally likely that it comes with the exploitation and manipulation of the El Salvadoran people.
How all this plays out is what we are yet to see. Other countries in the Global South are following El Salvador’s lead with hope of learning from her mistakes.
Wrtten by;
Mugerwa Joseph
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