The government of El Salvador recently bought at least 200 bitcoins, before the country officially recognized bitcoin as a legal form on Tuesday. The purchase brings the total government holdings to at least 400, the equivalent of about $ 20.5 million in cryptography depending on the price this morning.
“El Salvador has just bought 200 new coins,” President Nayib Bukele tweeted Monday night. “It simply came to our notice then #bitcoin #bitcoinday ”
Bukele, a 40-year-old man aligned with the political right wing, defended a law in June to officially recognize bitcoin as the national currency. Tthe law will come into force today, that is, people will be able to pay their taxes with bitcoin and, perhaps most importantly, avoid taxes on bitcoin capital gains in the country.
Even the government has encouraged the adoption of bitcoins in El Salvador with the country’s official cryptocurrency portfolio, known as Chivo. Ccitizens can sign up and receive $ 30 in free bitcoin, although privacy advocates are concerned about the application. Bukele has reassured Salvadorans nervous that all government salaries and pensions will be paid in US currency, which El Salvador adopted in 2001 after the fall of its national currency and not in bitcoins.
El Salvador is the first country in the world to recognize bitcoin as a currency, and it is true that other countries will be watching closely to see how it goes. Cryptography enthusiasts are announcing the Bitcoin law as a new chapter in the world of money and will supposedly help approximately 70% of Salvadorans who do not have access to traditional financial services. But bitcoin has shown little use outside of its function as a speculative asset: an elaborate Ponzi scheme that channels money from the poor to those who are already rich.
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The price of Bitcoin is extremely volatile, which makes its use as a currency incredibly difficult. When El Salvador passed the Bitcoin Act in early June, the price was $ 31,453. This morning, the price is $ 51,423. And while it’s great for people who bought Bitcoin in June, it’s so likely to get back to that level at an earlier time.
One of the most important obstacles to bitcoin right now is its technological limitations and its inability to scale. The bitcoin blockchain can only handle approximately seven transactions per second. In comparison, Visa says it can handle about 24,000 transactions per second. Bitcoin proponents like to brag about cryptography as a brilliant new technology, but it’s not really very good at the only thing it’s celebrated as: a currency.
There are also relatively high transaction costs of Bitcoin, which currently have an approximate average $ 3.30. As recently as April, bitcoin transaction fees were over $ 60, which again makes it incredibly impractical as a currency.
Since it was announced, the Bitcoin law has already prompted the rating agency Moody’s lower El Salvador and the IMF are worried about a new loan he is negotiating with the country. And regulators around the world are worried that El Salvador’s bitcoin hug will lead to a wave of money launderers in the country.
Will El Salvador be able to become a bitcoin-based economy, despite the huge problems arising from cryptography technology? It remains to be seen. But one thing is for sure: if you like money laundering, El Salvador is your new favorite place in the world.