El Salvador makes Bitcoin a legal tender. Here’s all you need to know

Bitcoin wallets can be stored offline or online at cryptocurrency exchanges, venues where bitcoin can be bought and sold for traditional currencies or other virtual coins.(Representative image)

Central American nation El Salvador became the first country in the world that has legalized the use of Bitcoin and will use it along with US dollars in day-to-day money transfers.  The move came at a time when cryptocurrency is seeing regulatory pushback in major countries. Here are the key things you need to know

El Salvador’s economy

El Salvador’s economy relies heavily on remittance money sent from workers abroad. World Bank data said that in 2019, remittances totaled $6 billion or one-fifth of its total GDP. In the short term, Bitcoin will help create jobs and give financial inclusion to thousands outside the formal economy.

On June 9, 2021, President Nayib Bukele announced through Twitter that any individual who will invest three bitcoins in El Salvador’s economy will be granted citizenship by the government.

El Salvador’s Currency

The country has used the US Dollar as official currency since 2001 and Bitcoin can be used as an option alongside the dollar.

President Bukele has said the government will guarantee convertibility to dollars at the time of the transaction, which will be done through a $150 million dollars trust created at BANDSEAL, the country’s development bank.

Middle-man’s involvement

Remittance money sent from workers abroad travels through a middle-man who takes a 20% cut, and often money coming in through a middle-man takes days to arrive and sometimes it needs to be picked up in person.

By using bitcoin, the amount that is received will increase by billions of dollars every year as there is no middle-man involved.

Supply 

The supply of bitcoin is capped at 21 million units which makes it immune to policy changes that affect the US Dollars and other currencies. To help introduce cryptocurrency to the country, ‘Strike’ a mobile payment app is being roped in to help.

New law

Under the new law, bitcoin must be accepted when offered as payment for goods and services, and tax contributors can pay through bitcoin.

Bitcoin mining hub

State-owned geothermal electric firm LaGeo has been instructed by the president to develop a plan to offer bitcoin mining facilities by using renewable energy from the nation’s many volcanoes.