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After El Salvador, who’s next to board the Bitcoin bandwagon?

The genesis block was mined on January 3, 2009, which is one of the most notable dates in bitcoin history. Satoshi Nakamoto's peer-to-peer digital currency has reached milestone after milestone in the intervening years, from achieving dollar parity to acquiring medium-of-exchange status when Laszlo Hanyecz paid 10,000 BTC for a couple of Papa John's pizzas. 

It's reasonable to say that the past year has brought us even more historic moments, further enriching the rich fabric of the world's most well-known cryptocurrency. However, one date in the future may stand out above all others: September 7, 2021.

Bitcoin Has Been Recognized As Legal Tender

Few could have imagined that bitcoin would one day become legal tender in a country. El Salvador, on the other hand, did exactly that on this date, sweetening the deal by offering all citizens $30 worth of BTC to encourage adoption.

Bitcoin will again share official currency status with the United States dollar, an experiment that should highlight the former's inherent benefits over the greenback while also potentially kickingstarting a de-dollarization process.

The adoption of a borderless and decentralised digital currency by a sovereign state is a slap in the face to the financial institutions that have long dictated the terms of play for rising economies around the world. In fact, El Salvador's President, Nayib Bukele, openly insulted the IMF while bragging about his purchase of the dip. One has to worry if this will spark off a chain reaction as other Central American countries consider following his lead.

Some may be perplexed as to why El Salvador chose to accept bitcoin in the first place. Why are you doing this now? Why bitcoin and not another crypto-asset that is more suited to serving as a medium of trade than a store of value? Clearly, there are no easy solutions. Rather, a number of factors are at play, including the forward-thinking mindset of a 40-year-old President who leads a party named New Ideas.

Bukele spoke on the country's monetary shift on the What Bitcoin Did podcast in June, and his remarks are enlightening for those interested in learning more about the government's motivations.

The President remarked, "This is simply exercising our sovereign power to adopt legal currency." “Like when we switched to the US dollar in 2001. What's the difference between the two? The only difference, most likely, is why we're doing it in the first place. It was most likely done in 2001 for the advantage of the banks. And it is for the people's interest that this choice is made.

“Bitcoin is a decentralised and open system. As a result, the public does not have to trust us. They must have faith in the system, and we have faith in the system.”

Increasing Financial Inclusion

Bukele went on to say that bitcoin will be a boon for remittances and economic inclusion because more than two-thirds of Salvadoreos lack access to traditional banking services and rely on money sent home from family who live abroad. Remittances from foreign-based people (mostly in the United States) totaled about $6 billion in 2019, accounting for nearly a fifth of the country's GDP.

With bitcoin now being recognised as legal tender, it is now possible to send money to relatives and friends who do not have access to bank accounts or credit cards in a rapid and inexpensive manner. Bitcoin, according to the President, may save residents $400 million per year in remittance fees - around $60 per person.

Remittance transfers in BTC were already increasing in the aftermath of the COVID-19 outbreak before El Salvador stated that it would accumulate sats on its Treasury balance sheet and make the asset legal tender. The events of 2020 has heightened the demand for efficient, cost-effective digital remittance services, with usage growing across Latin America, India, Southeast Asia, and Africa. Although bitcoin has been eroding the market share of traditional money wire firms such as Western Union and MoneyGram for some time, it declared war on them last year.

The government of El Salvador is resurrecting economic ideas that have been dormant since the days of the gold standard, when nations couldn't artificially inflate their monetary base by printing paper out of thin air.

While the benefits of such a move are obvious, the possible drawbacks are concerning: according to one analyst, the government may see a steady outflow of greenbacks and a constant inflow of bitcoin, depleting the country's dollar reserves.

Of course, a rise in the price of bitcoin could be beneficial to the government of El Salvador – and it is likely to make citizens think twice before converting cryptocurrency to cash.

The Next Domino to Fall

Whatever happens, El Salvador will be remembered as the first country to legalise bitcoin as a form of payment. It is unlikely to be the last: the Ukrainian Parliament recently passed legislation legalising and regulating cryptocurrency, and Professor Vyacheslav Evgenyev predicts that the country will make Bitcoin legal tender by the beginning of 2023, making it a “dual-currency country” similar to El Salvador. According to circulating rumours, President Volodymyr Zelensky's administration has met with colleagues in El Salvador to discuss the feasibility of such a scheme.

In other countries, Cuba and Panama are creating the framework to legitimise cryptocurrency transactions, which might lead to widespread adoption of bitcoin. The United States' restriction on remittances to Cuba won't stop this from happening; Cubans living in the United States currently have no choice but to pay up to 30% in commissions to send money to loved ones on the island.

For the time being, the final word should go to Nayib Bukele:

“The bitcoin system is so flawless that I think it’s gonna be the future. It is the present already in a lot of things – but it is gonna be way bigger in the future.”