Bitcoin as Legal Tender: Lessons Learned So Far From El Salvador
El Salvador is the first country in the world to make Bitcoin (BTC) legal tender. This has changed many of the pre-conceptions people had about Bitcoin as a speculative asset that didn’t have any value. Nowadays, families in El Salvador would save hundreds of millions of dollars in commissions not paid to payment processors. Taking this into consideration, Bitcoin is now helping the country become a truly independent nation that would not have to rely on international financial institutions.
The experience of El Salvador is just the beginning of many other countries that could adopt the Bitcoin standard in the coming years. Bitcoin’s attractiveness is not related to its high price or profit potential, instead, is valued by those that have been unbanked and couldn’t get access to financial solutions.
In the next sections, we will discuss how Bitcoin became legal tender in El Salvador, its political and economic implications and how RSK is also shaping the Bitcoin landscape in Latin America.
Bitcoin Becomes Legal Tender in El Salvador
Back in June 2021, the president of El Salvador Nayib Bukele announced a new law that would make Bitcoin legal tender in the country. This was the first attempt around the world to make BTC legal tender. And it was positively received by the congress. Starting from September 7, businesses, shops and companies in the country must accept Bitcoin as a means of payment.
We have seen numerous shops and companies that started accepting BTC payments without finding major issuers or problems handling the largest cryptocurrency in the world. Despite the fact that Bitcoin was used as a store of value by many, it is now being used as a payment method, something that was tried in the past through different initiatives but it was not able to work on a large scale.
El Salvador is just the first country in the world to have accepted Bitcoin as a legal tender currency, but many others could follow in the future. This shows that there is a large interest in BTC as a currency and as a store of value as well. With the official Bitcoin law announcement, Mr. Bukele has also announced other very important things for Bitcoin. He explained that they were starting a project to mine Bitcoin using volcanic energy that would otherwise be thrown away.
El Salvador is also the first country that has decided to actively purchase Bitcoin for its national reserves. As of today, El Salvador has 700 Bitcoins. Although this is a small amount compared to other companies, that´s a significant decision for a country with a population of 6.8 million. Furthermore, this turn towards Bitcoin and cryptocurrencies has a deep impact on El Salvador. The country is now testing how Bitcoin could affect its economy and what are the positive things that they could take from it. In the future, new projects and announcements related to Bitcoin could make headlines from El Salvador.
Lightning Network Expansion
One of the things that El Salvador has seen is the real-life implementation of the Lightning Network (LN). As we all know, there has been a strong clash in the Bitcoin community several years ago on how to properly scale the network. Supporters of the so-called on-chain scaling solution forked to what nowadays is Bitcoin Cash (BCH). Instead, those supporters of off-chain scaling solutions remained close to Bitcoin (BTC) and worked on the Lightning Network. The Lightning Network makes it possible for Bitcoin to process thousands of transactions per second for almost no fee and instantly.
Some businesses in El Salvador have already implemented different LN solutions to accept BTC payments in seconds without having to rely on the main Bitcoin blockchain. Once several transactions have been processed, the funds become settled on the blockchain.
RSK is also playing a very important role in El Salvador by working with different companies that are now making it possible for users to pay with Bitcoin and use their BTC on hundreds of stores. Bitcoin payments are becoming the norm in the country and this is something that is closely related to the expansion of the LN and the involvement of different companies like RSK.
The Lightning Network is also very useful for users that want to send and receive small amounts of money. A Bitcoin on-chain transaction would rarely be below $50. This is because of how the blockchain network works and how users are incentivized to batch transactions.
Thanks to the LN, merchants and businesses do not have to wait for the transaction to be confirmed by the blockchain as the BTC are handled off-chain. These funds would then be settled on the blockchain once several transactions have been performed by the LN node and after closing a channel. The LN capacity recently surged to over 3,000 BTC and there are more than 27,500 active nodes making it possible for the LN to offer better and more solutions to users, not only in El Salvador but also in other countries.
El Salvador has been just one of the countries where the LN has been implemented and where it is currently expanding. Basically, El Salvador is showing that the LN has real-world use cases and that it works as a way to help Bitcoin scale.
Bitcoin Surpasses 2 Million Users in El Salvador
According to President Nayib Bukele, there are more than 2.1 million Salvadorans actively using Chivo wallet. Chivo Wallet is the wallet created by the government that lets users send and receive Bitcoin. In a recent Tweet, Bukele explained that the wallet is expected to have more users than all the banks in El Salvador combined.
This shows how fast a country can implement the Bitcoin standard and move away from legacy options. El Salvador uses the U.S. dollar as a de-facto currency but in just a few months Bitcoin´s adoption rate increased from 5% to over 30% of the country’s population. Less than three weeks away from wallet´s launch, there were almost as many Bitcoin active users as bank users in the country.
It is also worth noting that the country has installed more than 200 Bitcoin ATMs in order for people to buy and sell their BTC. Additionally, if they want to get USD, they can also do so using these machines. Hence, the whole expansion process of Bitcoin is now being powered and pushed by the government and local companies offering services and solutions linked to BTC and digital currencies. In the coming months, it is expected the number of Bitcoin users to surpass the number of bank users proving that Bitcoin is becoming a relevant option to bank the unbanked.
Financial Implications for the Region
El Salvador’s decision to make Bitcoin legal tender has and will have a strong impact on the country and the region as well. With the implementation of the so-called Bitcoin Law, remittance companies will lose millions of dollars in fees. El Salvador has a large population living abroad, which means that remittances are very valuable for the country. Just in 2020, for example, El Salvador received close to $6 billion in remittances, approximately 23% of its GDP.
Most money services providers usually keep between 1.5% and 2.5% of the funds transferred to El Salvador. Thanks to the Lightning Network transactions will be instant and almost commission-free now that Bitcoin is the standard. Almost 70% of Salvador´s population receives remittance payments every single year. Bitcoin can definitely change how people access to financial solutions.
Although the positive effects of Bitcoin are usually underestimated by large corporations and companies, there are many examples showcasing how BTC can substantially change lives for the better. Remittances would not only be free of large commissions, but the implementation of LN and other BTC payment solutions are making it possible for people to save time and money. For example, Milton Cabrera, a normal Salvadoran citizen, is now saving up to 3 hours a month thanks to Bitcoin. Rather than paying his bills in person, now he can easily scan a QR code and pay with BTC.
RSK Involvement in El Salvador
RSK is currently having a strong and deep impact on El Salvador thanks to a wide range of projects that are currently being deployed in the country. RSK is working right now as the largest smart contract network on top of Bitcoin thanks to merged mining.
Thanks to its capabilities, RSK is able to offer unique solutions to companies and developers that want to rely on smart contracts without having to sacrifice security. Hence, RSK is an ideal platform for firms in the country that want to create new solutions and expand their businesses.
Krypton Market is one of these examples. Krypton Market is a recognized online cryptocurrency marketplace that focuses on Bitcoin and that has decided to offer solutions to companies that want to receive BTC in El Salvador. If a merchant wants to get paid in Bitcoin, it can do so through Krypton Market, which runs on top of the RSK blockchain network.
Krypton Market is using RSK’s technology and solutions to offer Bitcoin payments to more than 700 stores in El Salvador. Although the deployment of the system could take some time, there are already 150 stores that have already been integrated into the country. Thanks to RSK solutions such as Money-on-Chain, Beexo or Defiant, the crypto ecosystem is able to expand reaching a larger number of users in El Salvador.
There are also some initiatives to hold different meetups and seminars in the country. Moreover, thanks to the expansion of the decentralized finance market (DeFi) and Tropykus Finance, Bitcoin users will be able to get access to lending, borrowing and crypto trading without relying on centralized financial companies. Thus, RSK is having a strong impact on El Salvador and the entire Bitcoin ecosystem.
Expansion of the Bitcoin Standard to Other Countries
With El Salvador’s decision to make Bitcoin legal tender, other countries will probably follow the same steps in the near future. Two of them are Ukraine and Paraguay.
The Ukrainian Parliament adopted a new law that legalized and regulated cryptocurrency. This is just the first step. Indeed, by 2022, the intention is for Ukraine to open itself to crypto businesses. Furthermore, this is also a step before a possible release of a local digital currency tied to the hryvna (Ukraine’s currency). Timing is another thing to keep in mind as the country passed the bill a week after El Salvador adopted Bitcoin as legal tender.
Paraguay has also been one of the countries that showed interest in Bitcoin after El Salvador’s announcement to make Bitcoin legal tender. Carlitos Rejala, a local congressman, has been the most active political voice in the country pushing for Bitcoin adoption.
Throughout 2021, Rejala posted numerous tweets about Bitcoin and how Paraguay could embrace this cryptocurrency. One of the things that Paraguay shares with El Salvador is the fact that they have renewable energies to power Bitcoin mining operations. With this in mind, it might be possible for the country to use Itaipu Dam’s hydroelectric power to mine Bitcoin.
There are some companies already mining Bitcoin in Paraguay, but making Bitcoin legal tender would push the market even further. Moreover, the social composition of the country is very similar to the one in El Salvador, making it possible for Paraguay to take some positive lessons from El Salvador and deploy them in the country.
RSK’s Projects in Latin America
RSK is currently working on different projects that bring financial control back to users. At the moment, most of the financial solutions offered in the region require a third party to keep custody of users’ funds.
RSK has already deployed several solutions that eanable users to manage their funds in a non-custodial environment. RIF Payments, for example, is a protocol that allows users to get access to an off-chain payment network that is fully deployed on the RSK network. People from vulnerable communities can use these solutions to send and receive fast payments without relying on a third party. This is quite similar to other solutions such as the Lightning Network.
RSK has been pushing for the adoption of Bitcoin and digital assets such as stablecoins which enable to get the benefits of crypto currencies without having to be exposed to their volatility. RSK has created a peer-to-peer financial system secured by Bitcoin’s network.
El Salvador is just the beginning but many other countries could start moving towards cryptocurrencies, and RSK is playing a central role in this expansionary process.
El Salvador became the first country in the world to make Bitcoin legal tender. Several countries have also shown interest in Bitcoin and the trend of new nations adopting and legalizing BTC could be just starting. This expansion of digital currencies in Latin America and other jurisdictions is being powered by different networks and protocols, and RSK is one of the key players of this new and fast-growing economy.
RSK makes it possible for DeFi projects and protocols to launch their solutions on the most secure smart contracts network in the world. Moreover, RSK is also becoming a large player in El Salvador by partnering with different projects that are currently making it possible for stores and companies in the country to accept BTC payments seamlessly.