El Salvador has become the first country in the world to legalize bitcoin as a legal currency. After a vote in Congress on Tuesday, the bitcoin will now become the legal equivalent of the US dollar in the country within 90 days. The new law means that every business will have to accept bitcoins in exchange for their services or goods, provided they have the technology to do so.
President Nouakchott said the move would make it easier for Salvadorians living abroad to send money home. This process is called remittance. Many countries, including El Salvador, depend on remittances from expatriates. In El Salvador, these remittances account for 20% of the gross national product (GDP). More than 2 million Salvadorians live abroad but have strong ties to their homeland and repatriate more than ارب 4 billion a year. But will bitcoin or cryptocurrency be the best source of remittances?
“No middle man.”
When people send money to their home countries, they usually resort to a bank or other financial services to facilitate the transaction. But these service providers make the process of sending money across borders very expensive. For example, if a person is sending a thousand dollars from the United States to El Salvador, and even if there is a ‘zero commission’ on the exchange rate, consumers still have to pay a hefty amount of bank charges on both sides. Can
One of the advantages of bit coin or cryptocurrency is that it does not depend on any such middleman. As a result, bitcoins can be attractive to poor countries and those who want to avoid these fees. But keep in mind that cryptocurrencies can pose many other major risks. Nigel Green, chief executive and founder of the DeWire Group, says: “We can expect other countries to follow in the footsteps of El Salvador.”
“This is because low-income countries have long suffered from the weakening of their currencies and the changes in the market that lead to inflation.” If the bitcoin gains more acceptance and becomes more widely used, its value can stabilize. “That’s why most developing countries use the major currencies of developed countries, such as the dollar, to complete transactions.” “But relying on another country’s currency can lead to very costly problems.” Is.
Fluctuate In Value
But cryptocurrencies also have disadvantages and can affect the ability of Salvadorians to receive money. Bitcoin is a virtual asset and has nothing to do with the real economy. Its value has fluctuated greatly in a very short period of time. And not everyone knows how it works and the dangers associated with it.
Unlike the traditional banking system, bitcoin does not have a system that protects the consumer from fluctuations in the value of the bitcoin.
Ken Rugov, a professor of economics at Harvard University and former chief economist at the International Monetary Fund (IMF), says the two main characteristics of a successful currency are that it is effective for transactions and that it is your wealth. Bitcoin does not have both properties, he says.
“The fact is that it is not widely used in the legal economy. Yes, a rich man sells it to another man, but this is not the final use. And without it, it has no long-term future. ” He says bitcoin is being used almost exclusively for betting. Although bit coin is growing in popularity, it is still rarely used for transactions. People who have bitcoins want to make more money by keeping their cryptocurrency.
Some people say that corrupt currencies can be a way to avoid high inflation. During the global epidemic, many large countries have been printing notes to keep their economies afloat. The more notes you print in the traditional currency system, the lower the value of the currency. Usually, people do not notice this decrease in value because the money they have remains the same. But they do notice that their shopping, eating out, and watching movies are becoming more and more expensive.
Bitcoin is a different matter. The supply of bitcoins is carefully controlled and limited. No one can create more bitcoins on their own. There will never be more than 21 million bitcoins in the world and each bitcoin can be divided into 100 million more units called a satoshi. This prevents the devaluation of the “normal” currency, which is well known in Venezuela and Zimbabwe. ‘A Brave Step’ “There is no doubt that there will always be critics, possibly from rich countries,” says Nigel Green. US Treasury Secretary Janet Yellen has previously called bitcoin a “highly ineffective way of doing business.” He also expressed concern over the “excessive” use of electricity in digital currency transactions.
It is unclear how much power bitcoin uses. According to the University of Cambridge Center for Alternative Finance (CCAF), which conducts research on cryptocurrencies, the bitcoin’s total electricity consumption ranges from 40 to 445 terawatts per year, averaging 130 terawatts. In contrast, the UK’s electricity consumption is just over 300 terawatts per year, while Argentina’s electricity consumption is in line with CCAF’s bitcoin estimates. Critics also say that while traditional banks can keep an eye on transactions, bitcoins can be a tax evasion for the very rich.
Meanwhile, many of the world’s central banks are considering creating their own digital currencies, while China has even launched a cryptocurrency under central control. And while digital currencies issued by banks are subject to government regulations, cryptocurrencies are completely free of any such regulations. President Bokele had earlier said in a statement that bitcoin would open the door to financial services for 70 percent of Salvadorians who still do not have bank accounts. Shortly before this week’s vote, he wrote in a tweet that “this will add more people to the financial system, and will boost investment, tourism, innovation and economic growth in the country.”