In recent months, the Central American country of El Salvador has been the headline of news around the world after its announcement to make legal bitcoin currency, becoming the first country to do so. This has met with a mixed reaction from financial institutions, such as the World Bank and the International Monetary Fund, due to the historically volatile nature of the cryptocurrency. However, El Salvador remains optimistic that they will soon become Bitcoin’s new leading haven.
In addition to the implementation of legislation establishing legal tender notes for bitcoins, El Salvador has also announced that it will operate bitcoins in an environmentally friendly manner. Taking advantage of the unexploited geothermal energy produced by the country’s volcanoes, El Salvador seeks to benefit from an economic boost through bitcoin mining. This article will focus on the introduction of bitcoin as a legal tender, as well as on the environmentally friendly mining process and how both can benefit El Salvador.
The Bitcoin law
On June 8, 2021, El Salvador became a pioneer in the world of Bitcoin by passing its “Bitcoin law“(Bitcoin Law) through Congress, making bitcoin the legal tender in the Central American country from September 7, 2021. In addition, the government continues to promote the cryptocurrency by giving a value of $ 30 Bitcoins to citizens who sign up for their national digital wallet known as Chivo Foreigners who invest three bitcoins in the country will also be granted residency in an attempt to further promote El Salvador as a suitable destination for cryptocurrencies .
Inevitably, while dispelling fears of the potentially damaging environmental impact that bitcoin mining can have, the promotion of bitcoin through the Bitcoin law has led skeptics to demand the passage of this law as a gamble, and many believe the country will now become a haven for money laundering and other types of financial crime. This was quoted by the World Bank as rejecting a request from El Salvador to help implement Bitcoin as a legal tender in June 2021.
However, there is still a wide range of possibilities for the Bitcoin Act to help alleviate poverty in El Salvador and have an overall beneficial impact on the Salvadoran economy. Temporarily excluding the advantage of geothermal energy that boosts bitcoin mining in El Salvador, which will be mentioned later in this article, the main ways in which new legislation can benefit El Salvador is by attracting new foreign investment and the elimination of dependency. in USD.
Starting with the first, before the bill was passed, the President of El Salvador, Nayib Bukele, stated that Bitcoin has a market capitalization of $ 680 billion and, if 1% of that amount would invest in El Salvador, would increase the country’s GDP by 25%. This shows that, if El Salvador successfully becomes Bitcoin Capital on a global scale, the economic benefits would greatly improve the country’s financial situation. This investment attraction has already begun, as several companies such as Athena Bitcoin, Strike and Paxful show interest in establishing operations in the country.
In addition to this, it can be argued that the passage of the Bitcoin law will reduce the reliance on USD. At the moment, there are eight countries outside the United States that use the USD as their official currency. This was originally introduced to reduce foreign exchange risk, but this negatively results in the effective recruitment of these countries to the US Federal Reserve. By introducing bitcoin as a legal tender along with USD, it makes it possible to decrease the dependence on USD, which is currently reducing GDP and passing it on to the United States.
Geothermal energy mining
In recent years, cryptocurrency mining has received intense criticism for the detrimental impact of its operations on the environment. Looking specifically at bitcoin, Bitcoin’s ledger operates on a decentralized network called a blockchain, which is updated worldwide through a network of miner-operated computers.
The mining process of the Bitcoin network produces a high energy consumption due to the amount of energy required by the mining platforms when verifying transactions by solving complex mathematical problems. This growing concern about how the environment suffering from bitcoin mining has caused countries to receive negative reviews, prompting the Chinese government to famously implement a cryptocurrency mining ban in China in an effort to achieve net neutrality. carbon.
While this has led miners to sell their equipment or move abroad to continue their practice elsewhere, a country that has received praise in recent times for its green bitcoin mining is The Salvador. In June 2021, President Bukele stated that he would use a state-owned geothermal power company to use the geothermal energy from the country’s volcanoes when the cryptocurrency was mined. This renewable energy source offers a clean alternative to the generally harmful cryptocurrency mining found elsewhere.
So how will this benefit El Salvador? Although the poverty rate is declining, as the smallest country in Central America, El Salvador is recognized by the World Bank as a relatively poor nation. However, bitcoin mining could be the way the country realizes economic growth. Bitcoin miners receive payments with bitcoin as a reward for their work in verifying transactions. By mining with clean and cheap geothermal energy, El Salvador has the potential to become a global mining center, which will undoubtedly have a positive impact on the country’s economy.
In conclusion, there is no denying that the application of this legislation has several risks, which can be problematic for the country of El Salvador and its citizens. The volatile nature of the cryptocurrency can cause a negative economic impact, placing the country in a worse financial situation than it currently has. In addition, its potential to be used for various types of financial crimes can tarnish both El Salvador and Bitcoin, making it synonymous with illicit behavior similar to the events of Silk Road, which provided exposure to the public of how cryptocurrency can be used as a vehicle for crime.
However, this argument was dismissed by Bukele, who turned to Twitter to dismiss the notion that most of the money laundering in the world is still carried out with cash. So, if the risk of financial crime is always present regardless of currency, why not implement Bitcoin when it has the potential to benefit the nation? Through the increase in investors, the reduction of dependence on dollars and the potential growth of El Salvador as an international mining center through the use of geothermal energy. Regardless, September 7, 2021 will be a historic day, which many will see with great interest in seeing if the legislation will have the positive impact that Bukele believes it is capable of or if it will be shown that skeptics of the law are right.
This is a guest message from Seth Galia. The views expressed are wholly unique and do not necessarily reflect those of BTC, Inc. o Bitcoin Magazine.