With El Salvador's Election Looming, How is the Bitcoin Social Experiment Going?
[TL；DR]:
The official adoption of Bitcoin may be attributed to President Booker’s choices in the context of increasing economic development obstacles, widening budget gaps, and limited access to the bond market.
The Salvadoran government has not only been promoting Bitcoin’s role as a currency as a trading medium, but also taking action to store its value as a gold like benchmark.
Bitcoin is developing into a more liquid and globally adopted currency payment and value storage , but it requires a long-term educational and cognitive process to win the acceptance of the general public.
Introduction
As the first country to adopt Bitcoin as a fiat currency, El Salvador’s presidential campaign has quietly begun recently, with incumbent President Nayib Bukele launching a re-election campaign.
“We need five years to continue improving our country,” the Bitcoin advocate president said in a public gathering.
It has been two years since Bitcoin was officially announced as a fiat currency. During this period, let’s explore whether Bitcoin has effectively improved the country’s financial situation and how this financial paradigm experiment has progressed.
Up to 70% of the population does not have a bank account on the path to breaking the situation
In September 2021, during the late period of the Bitcoin bull market, President Nayib Bukele of El Salvador submitted a proposal for Bitcoin as a fiat currency. Out of a total of 84 votes in Congress, he received 62 votes in favor, making Bitcoin the first fiat currency in human history, while El Salvador became the first Bitcoin country in human history.
This is not an impulse. According to media reports, the official adoption of Bitcoin comes at a time when President Booker is facing increasing economic development obstacles, widening budget gaps, and limited access to the bond market.
Especially in El Salvador, where 70% of people do not have bank accounts, the government’s push for Bitcoin adoption is more like an innovative attempt to break the situation in real difficulties.
Since 2001, in order to stabilize and support the economy plunged into chaos due to the 12 year bloody civil war that ended in 1992, the Salvadoran government has started using the US dollar as its main currency, which helps Salvadorans residing abroad to repatriate US dollar income, which accounts for nearly a quarter of the country’s gross domestic product.
To hedge against the impact of the US dollar monetary policy, many underdeveloped countries, including El Salvador, have been seeking active intervention plans beyond dealing with runaway financial sovereignty. Therefore, efficient, transparent, unlicensed, and unmanned Bitcoin has become a breakthrough option.
As the media has stated, financial inclusivity has always been a core focus of President Nayib Bukele’s administration, which supports Bitcoin.
In order to promote Bitcoin transactions, the Salvadoran government has developed the digital wallet Chivo, which promises to receive $30 per new user. However, the central bank of the country stated that only 1% of the $4.71 billion in remittances received between January and July this year were completed through Chivo.
Coffee shops in El Salvador support BTC payment Source: Reuters
In fact, although the application of Bitcoin in production and daily life is not smooth, there is still a promotion. According to a recent travel diary released by a Coindesk employee in El Salvador, the Bank of El Salvador does not yet support Bitcoin, but many insightful entrepreneurs have started running many businesses related to crypto payments. He saw evidence from President Bukele about the infrastructure outlined in Bitcoin’s vision.
Just as people are just starting to switch from gold and silver to fiat currency, it will take several years for them to trust the Bitcoin network like they trust the US dollar, after all, relying on new things to promote people’s economic freedom requires a continuous process of education and adaptation.
Incorporating Bitcoin into national reserves
Although many opinion polls have shown that President Nayib Bukele’s Bitcoin strategy has “failed,” this has not hindered the government from promoting a series of Bitcoin related projects.
The Salvadoran government has not only been promoting Bitcoin’s role as a currency as a trading medium, but also taking action to store its value as a gold like benchmark.
As early as June 2021, Nayib instructed the state-owned geothermal power generation company LaGeo to develop a plan to use the geothermal energy of the country’s volcanoes to power Bitcoin mining facilities. El Salvador has abundant geothermal resources, with over 20% of its electricity currently coming from geothermal power generation, but this only uses one-third of the country’s total geothermal power generation potential.
The government’s personal mining has also driven private enterprises into the market. In early October of this year, El Salvador’s renewable energy and mining company Volcano Energy and Bitcoin mining software provider Luxor Technology jointly launched Lava Pool, aiming to use El Salvador’s geothermal energy to mine Bitcoin. It was agreed to allocate 23% of net profit to the Salvadoran government.
In addition to mining, the Salvadoran government also directly purchases Bitcoin in the market. The most recent public information was that on November 17, 2022, during the cryptocurrency winter, Nayib Bukele announced the purchase of 1 Bitcoin per day starting from the following day.
The timing of the government’s purchase of Bitcoin in El Salvador Source: nayibtracker.com
According to the website nayibtracker.com, which tracks the country’s Bitcoin assets and shares the same name as the current president, as of the publication date, the Salvadoran government currently holds 3076 Bitcoins, with an average purchase price of approximately $40,565.01, a loss of nearly $200 million.
The Future Vision of the Bitcoin Currency Experiment
Presently, the process of Bitcoin legalization in the country is not smooth, which naturally involves a game between different goals such as financial inclusivity, public fiscal returns, and the reputation of the president.
But it can also be seen from the side that Bitcoin may still be some time away from truly “entering the homes of ordinary people.” This requires both a gradual process of understanding, learning, and adaptation for the public, and the Bitcoin eco developers to launch more simple and easy-to-use infrastructure and products into the market.
The dissemination of new things often follows a winding path with broad prospects.
A welcome sign is that supporters of El Salvador’s cryptocurrency plan are beginning to emerge.
More than 3000 active users and over 600 households in the country have benefited from the improved lives brought about by Bitcoin. The charity event is hosted by an organization called Bitcoin Beach. According to the white paper, Bitcoin Beach is an event organization aimed at ensuring the potential of Bitcoin is realized by helping those excluded from the banking .
Bitcoin Beach homepage Source: bitcoinbeach.com
Another Bitcoin education non-profit organization located in El Salvador is My First Bitcoin, which claims to have helped 25000 students obtain “Bitcoin diplomas” through the country’s public school .
The experiment in El Salvador also affected other countries. In April last year, Central Africa declared itself the second country to support Bitcoin as a fiat currency, and the governments of countries such as Paraguay, Panama, Colombia, Argentina, and Ecuador in Central America have also expressed strong interest in Bitcoin in different ways.
Overall, relying on its limited supply, cross-border, efficient and convenient advantages compared to fiat currency, Bitcoin is developing into a more liquid and globally adopted currency payment and value storage . Of course, its price is still not very stable, and the general public also needs a long-term cognitive process.
We will continue to pay attention to whether Bitcoin can benefit El Salvador in the future, how it will affect the re-election campaign of this Bitcoin practitioner’s president, and how this currency experiment will compete with the central bank’s digital currency.
