In the ideal world of cyberpunk riddles, what would be the best legal tender? Bitcoin may win by a wide margin.
Recently, the cyberpunk dream has come closer to reality than ever before.
El Salvador President Nayib Bukele said at the Bitcoin 2021 conference in Miami on June 6 that he would submit a bill to the country's parliament next week that would make bitcoin a legal means of payment in the country.
If approved, the bill means El Salvador will become the first country in the world to adopt bitcoin as legal tender.
Later, President Salvador retweeted Sun Yuchen, the "King of Topics" in the coin circle and CEO of TRON, on the tweet of "crypto investors and entrepreneurs moving to El Salvador", and analyzed the four benefits of El Salvador for crypto entrepreneurs, respectively:
1. Good climate, world-class surf beaches, oceanfront properties for sale;
2. One of the few countries in the world without a property tax;
3. No tax on Bitcoin gains, because Bitcoin will become legal tender;
4. Crypto entrepreneurs get instant permanent residency.
The news inspired the crypto industry. Binance CEO Zhao Changpeng and Sun Yuchen also responded to the news from time to time. The news about El Salvador in the crypto circle of Twitter began to refresh.
But most of your first reaction is, what is El Salvador like?
El Salvador, a small coastal country located in the northern part of Central America, covers an area of more than 20,000 square kilometers, an area about 1.2 times the size of Beijing, and has a population of about 6.7 million, about one third of the permanent residents of Beijing.
As a "low and middle income country" with agriculture as the economic pillar, El Salvador has experienced 12 years of war and civil strife, known for poverty and gang violence, more than 3,400 murders in seven months, can be called "one of the most dangerous countries in the world".
Economically, El Salvador did not issue its own independent sovereign currency, but settled in US dollars. The issue and regulation of US dollars were all decided by the United States. El Salvador had to be submissively dependent, and real independence was out of the question.
Now, the tiny nation is making headlines around the world and getting the crypto industry's close attention with a startling statement from its new president.
After the news was broadcast, a group of Salvadorans expressed their admiration for the new president on Reddit. A user with the ID RussianRadium wrote that the progressive president has brought changes to Salvador and redefined the country's international image.
Here's a glimpse of the state of the country:
Astonishingly, bitcoin had become a payment method on El Zonte's coast before the president spoke. The project is called Bitcoin Beach.
El Zonte, a rural town of 3,000 people on the coast of El Salvador, is a surfer's paradise thanks to its beautiful waterfront. Battered by the COVID-19 epidemic, El Zonte has found its own unique path thanks to the Bitcoin economy.
According to Forbes, El Zonte's anonymous donors initially bought bitcoins for 5-10 cents and kept them on USB sticks for several years. In early 2019, he made a six-figure donation to El Zonte in Bitcoin after retrieving the password to his wallet.
The donor then teamed up with Michael Peterson, an El Zonte volunteer, to use the money to improve the lives of El Zonte residents, with one condition: Michael Peterson could not exchange bitcoin for fiat currency. El Zonte residents must learn how to use Bitcoin itself to create a Bitcoin economy. That was the birth of the Bitcoin Beach project.
Currently, a common criticism of Bitcoin payments is the high fees and slow network processing. The "Bitcoin Beach" project has responded to this challenge by looking for a new approach. "When transaction costs went up, we switched to the Lightning network." Michael Peterson, founder of Bitecoin Beach.
Lightning is a layer 2 payment protocol that runs on top of the Bitcoin network and enables instant transactions. "Bitcoin Beach" selects a digital wallet as the payment tool, and local residents can use the Lightning network to buy anything from burritos and bulky items to pay utilities.
Whether Mr Zonte's success can be applied to El Salvador as a whole is a question for the president, Nayib Bukele.
At the moment, the image he projects via Twitter is a far cry from that of a steely national president. After gaining worldwide attention with his Bitcoin comments, it's easy to see that the president has fallen in love with surfing the web.
He changed his Twitter profile picture to the necessary "laser eye" in the currency circle, and frequently retweeted his positive response, calling El Salvador "the land of the free." Judging from his tweets, it looks like the path to using bitcoin as a fiat currency is already clear and everything is in order.
However, under the noise and enthusiasm, there is a shadow.
In discussions about bitcoin payments, the most common problem is the wild fluctuations in the price of bitcoin. When people living outside El Salvador convert their assets into Bitcoin, they send it back to their loved ones' accounts via the Lightning Network. If the price of Bitcoin plummeted by 30% in that short period of time, how would hardworking residents bear it?
In addition, Wall Street and other financial institutions define Bitcoin more as a "commodity" than a currency, which is close to "gold" and "oil" in the financial system. In El Salvador, where the financial system is not perfect, how can residents use "oil" to conduct daily transactions?
At home, the new president faces no shortage of critics. Reddit user Mschweini said Bukele's attitude is more populist and he is replacing El Salvador's judiciary with his own cronies. In the Salvadoran Mafia environment, Bitcoin may be more conducive to black markets, money laundering and other illegal activities.
Bukele is only three years into his political career in a country at war with frequent civil strife, and Bitcoin's legal status is closely tied to the stability of his own political career, creating uncertainty about the future of Bitcoin in El Salvador.
Externally, El Salvador has also struggled to use bitcoin as legal currency. Keep in mind that El Salvador is not the first country to want to launch a fiat cryptocurrency.
In February 2018, the Marshall Islands, a Sovereign nation in the South Pacific, said it would issue the world's first Sovereign legal cryptocurrency, the "Sovereign (SOV)." The sovereign digital currency will circulate in the country alongside the US dollar, a decision that has been approved by the Marshall Islands National Assembly.
However, the resolution was not popular internationally.
In 2018, financial institutions including the International Monetary Fund (IMF) and the US Treasury Department questioned and criticized the Marshall Islands resolution. In May 2020, the International Monetary Fund again issued an official statement against the upcoming national digital currency SOV of the Republic of the Marshall Islands.
Venezuela, like the Marshall Islands, is heavily dependent on foreign aid and has tried and failed to save itself by issuing the national sovereign cryptocurrency, the Petro. Petromoney alone will not really save Venezuela from its economic woes.
The Marshall Islands and Venezuela have struggled with fiat cryptocurrencies, so can El Salvador, a small country, rely on bitcoin to become its own currency?
The use of cryptocurrencies will not replace the legal status of the US dollar and does not mean de-dollarization of the economy, El Salvador's commerce minister told the media on June 8. For now, the US dollar is still the legal tender in El Salvador, and both recipients and payers can choose to pay in Bitcoin when they wish, and the US dollar is still the standard of payment.
So Bitcoin still has a long way to go before it can help El Salvador become an independent currency and a country of its own.
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