Bitcoin embraced by some as a mainstream currency
Even with bitcoin, when one door closes, another opens in the ever-evolving crypto world!
The conception, reception, and rejection of bitcoin and related cryptocurrencies as legal tender in two very different countries:
China: In the toughest blow to the industry yet, China put out the final word last week on all things crypto, declaring all crypto financial transactions illegal while banning any further cryptocurrency (bitcoin) mining operations within the country. Even services provided by offshore exchanges are now considered illicit activities and included in the ban (1).
El Salvador: meanwhile, three months earlier, on June 9, 2021, El Salvador’s national Congress approved digital bitcoin legislation, thus, becoming the first country in the world to adopt bitcoin as legal tender for everyday use, along with its current US dollar legal tender (2). And in another unprecedented move, the El Salvador government purchased 400 bitcoin for an estimated $21 million dollars to float the launch, while anticipating further purchases in the future.
El Salvador president Bukele announced a further incentive; the government was going to give away $30 in bitcoin to every citizen – placing it directly into their digital wallets (3).
It's been an extremely interesting concept to follow given that El Salvador, a small country in South America, would be the first among the giants to embrace such new technology.
Cryptocurrency advantages for many emerging economies
• Traditional banking access is limited or non-existent for a large percentage of populations in some developing countries
• Money transfers from expatriates working abroad generate huge GDP numbers
• Currency conversion eliminated
• End-to-end encryption for ease and security
• Introducing families and businesses to investment concepts and asset appreciation
• And in El Salvador’s situation, a unique, geographical advantage, geothermal energy from the country’s numerous volcanoes producing inexpensive electricity, allowing the government to not only circulate Bitcoin digitally, but also develop bitcoin mining operations.
Common concerns echo common concerns elsewhere
Bitcoin adoption as legal tender was met with mixed reception, not the least surprising, with opinions largely depending upon the recipient user: those financially and digitally savvy supportive, while the majority of the population was very much opposed, staging protest rallies against deemed political dictates that every payment vehicle would have to accept bitcoin in payment.
Stability of value
Businesses expressed reserved interest but are not quite sure how it will impact their overall cashflow planning. A common concern for payment in everyday use was accepting bitcoin at one value, only to see the value drop severely when converted to their cash operating account. Some businesses felt it might be more prudent to keep the cryptocurrency for longer-term investment appreciation.
Physical and digital access
• Supportive internet an issue in remote areas
• Affordability of smart phones
• To procure bitcoins physically, El Salvador proposed using bitcoin ATMs, although it appears that complete digital processing will follow
• Expensive conversion costs, both to buy and to sell back to local currency
Lack of understanding of the underlying investment process
• Regular and financial illiteracy often cited
• Smart phones technically challenging
• Constant pricing fluctuations
• Conversion access – immediate, delayed, unavailable
• Reliability of power grid functioning
The basic bitcoin wallet/key process
Purchasing bitcoin is like any digital account, such as an investment account. You need a place to keep it – in this case, when opening an account, your digital wallet is created through a wallet application.
The account opening process provides you, just for you, with a private key – generally, a random 12-word phrase. You will be encouraged (warned) to keep this key in a secure location away from scrutiny. If you forget or lose this private key, you will also lose access to your crypto account. Sorrowful tales abound of those who have lost their private key and have no ability to access their account and bitcoin’s appreciation in value.
Is it really decentralised finance, if bitcoins are managed by a government?
Cryptocurrency originally invoked popularity because of its adaptation from traditional centralised finance, meaning that as a blockchain-based form of finance that does not rely on central financial intermediaries, such as brokerages, exchanges, or banks to offer traditional financial instruments.
Devotees often cited this new form of medium of exchange as free from government interference, regulation, completely anonymous, and possibly safer and more secure than traditional fiat currency.
However, If bitcoin is being purchased, promoted, and managed by a government entity, including the bitcoin dissemination process, that raises the question of whether bitcoin is truly decentralised.
Other countries’ interest is evolving too
The incentive spark of cryptocurrency adapting to mainstream has been generated: now is it a catalyst growing, now possibly unstoppable, despite China’s rejection? Gathering steam, numerous other countries have shown great interest in adopting some version of El Salvador’s bitcoin model (4).
More on this – so stay tuned as the digital world follows this latest innovation of digital currency as an alternative to, or a complete change from fiat currency.
(1) “China Widens Ban on Crypto Transactions: Bitcoin Tumbles”, Bloomberg News, September 24, 2021
(2) “In a world first, El Salvador makes bitcoin legal tender”, Nelson Renteria and Tom Wilson, Karin Strohecker, Reuters, June 9, 2021
(3) “Fear and excitement in El Salvador as bitcoin becomes legal tender”, Joe Tidy, BBC News, September 7, 2021
(4) “Tanzania Considers Crypto – And Boosts Bitcoin – As Nations Line Up Behind El Salvador To Embrace Decentralised Finance”, Robert Hart, Forbes, June 14, 2021
• Martha Harris Myron, CPA JSM, a native Bermudian, is the author of The Bermuda Islander Financial Planning Primers, international financial consultant to the Olderhood Group Bermuda, and financial columnist to The Royal Gazette. All proceeds from these articles are donated by The Royal Gazette to the Salvation Army, Bermuda. Contact: email@example.com