El Salvador has become the first country in the world to classify Bitcoin as a legal currency officially. The ‘Bitcoin law’ was passed in June with 62 out of 84 Congressional votes. Today, that law came into effect.
El Salvador bought $21 million worth of Bitcoin ahead of the law coming into action. The government has additionally authorized 200 new cash machines to be installed across the country. These will be able to convert US dollars (El Salvador’s legal currency since 2001) into Bitcoin.
The price of the cryptocurrency skyrocketed, before settling at $51,360 on Tuesday, down 0.7% in the last 24 hours.
Chivo – The Digital Wallet for Bitcoin Transactions
Chivo is the name of the fee-free digital wallet that Nayib Bukele’s government has launched for this new venture. Locals will be awarded an initial $30 worth of Bitcoin to join the wallet, which they will then use for their transactions.
The Salvadoran government has released a video explaining what to expect when the Bitcoin Law enters into force.
“Using bitcoin is not mandatory. You will have the option of paying and collecting in bitcoin or dollars. All cash transactions, prices, salaries and pensions will continue to be in dollars,” it says in the video. “With our wallet, you will receive a bitcoin bonus worth $30 USD for you to spend. You will have the option to pay in dollars or bitcoin from your mobile without the need to handle money or sign vouchers. Also, those who collect from you will not need to handle money, a card, or be charged any fees. You will have the option of sending and receiving remittances at any time of day without fees.”
The Supporters and the Bitcoin Skeptics
Bitcoin supporters across the globe were excited when the news came out. The local devotees are hopeful that this kind of commitment will promote foreign investment in the country and decrease remittance costs for expatriate Salvadorans. As additional incentives, the government decided that Bitcoin transactions will be exempt from capital gains tax, and foreigners investing three Bitcoins in the country (roughly $120,000) will be granted residency.
On the other hand, the locals seem less than happy. Reportedly, less than 70% of Salvadorans agreed with the government’s decision to adopt Bitcoin as a legal tender.
“The law was adopted extremely quickly, without a technical study or a public debate,” argued Ricardo Castañeda, a local economist. “I don’t think the president has fully understood the implications of the law, its potential to cause serious macroeconomic problems and convert the country into a haven for money laundering.”
It appears that some governments, such as China, are taking the opposite direction and putting their best efforts to rid the concept of decentralized finance out of their citizens.
It is yet uncertain whether the crypto market is a bubble or if it’s the future. What is certain, though, is that the whole world will now be watching El Salvador. Everyone is curious to see how this venture will develop. It is a huge milestone for the cryptocurrency market and potentially an even bigger one for the economy at large.
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