Bitcoin Experiment in El Salvador
Tomorrow is the big day: Bitcoin will become a legal tender in El Salvador.
But, is BTC ready for mass adoption? Yes and no...
"A cryptocurrency is a store of value. It is a medium of exchange, but is not generally accepted. It’s only accepted by those who are participating in it" - Lesetja Kganyago, South African Reserve Bank governor
Let's talk a bit about money. What is money? Yes, money might come in different forms, but all money share three main functions:
- money is a store of value. The money earned today, must keep their value until they are spent tomorrow, next week, or even next year. Counterexample: economies with hyperinflation , like Germany after the First World War (30,000 percent per month), Zimbabwe (489 billion percent in September 2008), or Hungary at the end of World War II (41.9 quadrillion percent per month)
- money is a unit of account, being a common measure of value across the economy. Your money must be accepted everywhere in a given territory, for any kind of product or service. Counterexample: socialist countries had prices for products in high demand in a special currency only accessible for some people (until 1 January 2021, there were two currencies in use in Cuba, the "Cuban Peso" and the "Cuban Convertible Peso").
- money is a medium of exchange, meaning that money is widely accepted as a method of payment. Counterexample: countries with a dysfunctional market economy may impose a strict control over the currency exchange, with the effect that local currency might not be accepted by sellers of imported goods.
El Salvadorans have taken to the streets to protest the adoption of Bitcoin as the official currency. Veterans, retired citizens and disabled workers voiced their concern over the volatile Bitcoin price. They are worried that government will start paying their pensions in Bitcoin instead of US Dollars.
With the current coin fluctuation, they might be right. Bitcoin might not store value, and international banks and businesses might not be willing to accept Bitcoin, as they don't want to fall afoul of money laundering laws.
There's lot of unknown, but El Salvador will go further, and become the first country to adopt Bitcoin.
Will this survive the test of time? No one can tell.
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