Back in June, Jack Mallers and El Salvador President Nayib Bukele made an emotional announcement that the country would soon make Bitcoin a national currency alongside the US Dollar, giving citizens a choice in what they wish to use. This was in response to feeling somewhat at the mercy of the US government, as the US Dollar was previously the only legal tender in the country.
Bukele argues that El Salvadorians do not benefit from the US Dollar as a means of savings because of the rampant money printing going on in response to the latest pandemic. So on September 07, a landmark event for cryptocurrency will occur as El Salvador becomes the first country to accept Bitcoin as legal tender. The Government has been trying to promote the new move through a series of TV advertisements and even airdropping all citizens $30 worth of Bitcoin. But this has many implications, positive and negative, that must be explored.
Recent state-sponsored TV commercials promote the use of digital wallets, such as the Chivo wallet. It explains to citizens what Bitcoin is and how you can interchangeably use the wallet for Bitcoin and US Dollar payments. It is also the wallet to download to be eligible to receive the $30 in free Bitcoin. However, many are concerned that these government pushed commercials fail to address the volatility of Bitcoin and that some people may fall in love with the idea of Bitcoin and unknowingly convert their life savings to the volatile asset, and may be prone to sell once they see their first violent downturn in markets.
Citizens in El Salvador need to understand the risks of holding significant sums of Bitcoin. While we can get parabolic rises to the upside, the same works to the downside, which is simply the result of holding an asset that is still maturing. The Government must educate citizens on this risk. No matter how bullish they are in the long term, short-term Bitcoin price change will be scary for some, especially those who have never dabbled in investments.
If used correctly, digital wallets like Chivo will provide people with smooth transactions for purchases and send and receive remittances across borders more easily. This is a considerable advancement for many who have been reliant on family members who moved to pursue better opportunities in foreign countries like the United States. They will now receive very close to the full amount sent, as the Bitcoin Lightning Network uses minimal fees.
If adopted in large numbers, this will effectively end the decades-long reign of traditional remittance companies who have ripped poverty-stricken people off by taking up to 30% off the top of these payments. This will put significantly more purchasing power in the hands of people, helping to put food on the table but also allowing them to start building a savings cushion for emergencies.
Despite the life-changing effects Bitcoin will have on people, some argue that it doesn’t justify it being made a national currency, as people can still use Bitcoin for remittances. However, the crypto community would argue that legalizing it was necessary to make people more aware of the money they could be saving. Not to mention, a digital wallet that uses both US Dollars and Bitcoin is about as close to a bank account as you can get, and this is a big deal considering that 71% of the country is unbanked due to their financial situation.
While the government should continue to educate people on potential downsides to holding Bitcoin, it should continue to hammer the life-changing benefits it provides to the people. To have your own digital wallet is as close as you can get to a bank, as it digitizes your money, so now unbanked citizens will no longer need to make long car rides to pay off their bills, instead, with the touch of a few buttons, they can now use the Chivo digital wallet, in either USD or Bitcoin.
This technology liberates people from using paper money and allows people to envision a future of savings with more surplus from remittance payments. It may not be embraced now by all, but both citizens and investors will likely come to appreciate the asset for what it can provide for people, regardless of its volatility.