El Salvador: How the Bitcoin Law started and how it fared in 2021
Before June 2021, the news about Nayib Bukele was probably not even of interest to many cryptocurrency users. El Salvador's president made headlines over allegations of corruption and dictatorial behavior after his party's parliamentary majority removed five members of the country's Supreme Court and his attorney general.
However, during the Bitcoin 2021 conference in Miami, Bukele surprised many participants and drew international attention by announcing that he planned to make El Salvador adopt Bitcoin (BTC) as legal tender. In less than a week, a supermajority of the Salvadoran Legislative Assembly (the majority of the members of Bukele's own party) had approved the Bitcoin Law, which obliges all commerce and businesses to accept the cryptoactive as a form of payment along with the American dollar.
Bukele's involvement in cryptocurrency adoption seemed to go beyond what many would have expected from a world leader. El Salvador's president was already active on social media and presented himself differently from many other politicians, often dressed casually in a baseball cap and jeans. Since the Bitcoin Law went into effect in September, he has used his Twitter account to announce various BTC purchases totaling 1,370 BTC, more than $64 million, presumably from El Salvador's national treasury. He also proposed that the country harness geothermal energy from its volcanoes to mine cryptocurrency.
Locally, opposition to the Bitcoin Law manifested itself in the form of public statements by legislators unrelated to Bukele's political party, as well as protests in San Salvador. Before the law went into effect on September 7, a group of retirees, veterans, disability pensioners and workers marched through the capital to express their concern about the volatility of the crypto asset and how the Bitcoin Law could affect their pensions. The protesters, calling themselves the Bloque de Resistencia y Rebeldía Popular, carried banners with the slogan "No to Bitcoin" in the streets to demand the repeal of the law.
Officials outside Bukele's sphere of influence also expressed skepticism about Bitcoin adoption. In June, Victoria Nuland of the US State Department encouraged El Salvador to take a "tough eye" on Bitcoin to ensure that the crypto asset was "well regulated" and "transparent," and that the government offered protection "against malicious actors". The International Monetary Fund issued its own warning in July, saying that the consequences of a country adopting Bitcoin as its national currency "could be dire."
In addition to helping establish the regulatory framework for the adoption of BTC payments, Bukele promoted efforts to build the necessary infrastructure so that El Salvador's businesses and citizens could use the cryptocurrency. The country already has Bitcoin Beach, an area in the town of El Zonte that is intended to be an experiment in which "Bitcoiners" can use the cryptocurrency to pay for anything from utility bills to tacos. Authorities have also overseen the installation of hundreds of Chivo ATMs, which allow Salvadorans to withdraw dollars in cash 24 hours a day without paying fees on their cryptocurrency holdings.
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However, the announcement that probably stands out as the most ambitious of Bukele's plans for Bitcoin in 2021 was the creation of a Bitcoin City initially financed by $1 billion in BTC bonds. Cryptocurrency exchange Bitfinex and Blockstream have already said they plan to support the initiative, which will reportedly aim to avoid paying taxes on capital gains, income, property, or payroll.
Criticism of Bukele for governing as an authoritarian has not necessarily been mitigated by the implementation of the Bitcoin Law, but the coverage is often accompanied by his statements about "buying on the dip", the proposal for a network of 24-hour Bitcoin news and other developments related to cryptocurrency in the country. There is little indication that the president has stopped self-identifying himself as the "world's coolest dictator," a Twitter bio he later changed to "CEO of El Salvador."
Prior to the approval of the Bitcoin Law, police detained a San Salvador resident who had protested against the country adopting Bitcoin as legal tender. In October, following several protests against Bukele's policies, the government banned the rallies, claiming that his actions were aimed at preventing the spread of COVID-19, yet it still qualified sporting and cultural events as exemptions.
"The cryptocurrency community that supports Bukele of all people shows that they need to think a little more [...] this guy is an authoritarian who can't provide basic services to his citizens," said Tommy Vietor, a commentator Pod Save the World politician. "[El Salvador has] one of the highest murder rates in the world. It seems to believe you can get power by plugging your Apple charger into a volcano somehow. Don't try to sell us a tech utopian city literally fueled by a volcano, let's start with something smaller."
As of late 2021, it is unclear whether the average citizen of El Salvador is reaping many benefits from the Bitcoin Law. Bukele announced in October that animals would benefit from cryptocurrency with the construction of a $4 million veterinary hospital, financed by the proceeds of the country's Bitcoin trust. However, the Latin American nation is likely still struggling to cope with the volatility of the crypto asset when used as a medium of exchange, as well as gaining understanding and acceptance from its population.
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