The Republic of El Salvador, a Central American country bordered by Guatemala and Honduras, has embarked on a completely innovative financial policy: since 2021, it has been possible to use Bitcoin as legal currency.

Until the late 1930s, El Salvador’s economy was almost exclusively based on coffee, with plantations controlled by a few local families (the so-called Civic Directory) who created a true oligarchy thanks to their economic and commercial power. In 1913, the dictatorial regime of Maximiliano Hernández Martínez was established, thanks to the action of a group of soldiers supported by the coffee oligarchy: during these years, a true process of industrialization of the country began, which allowed for economic diversification but also contributed to problems and imbalances within the population. This led to revolts by citizens and peasants, such as the one in January 1932, brutally repressed by the regime, resulting in between 10,000 and 40,000 deaths. The dictator of El Salvador forged relationships and cooperation agreements with Francisco Franco, the Spanish dictator between 1939 and 1975, aligned himself with other dictatorships in Europe, and followed the state models of Hitler and Mussolini.

The civil war of the 1930s, along with popular uprisings, compromised the economy of the country, nearly bringing it to its knees. World War II initially favoured the Salvadoran economy, leading to a revival of exports, in particular to the United States, but there was no significant recovery. Currently, El Salvador's economy is primarily based on agriculture and trade.

Since 2019, President Nayib Bukele, founder of the majority party "Nuevas Ideas," has been in office. He has initiated a series of social policies aimed at reducing organized crime in the country and introduced new economic initiatives, including the one I would like to highlight in this article. As stated on President Bukele's Wikipedia page, it is said that:

Bukele declared Bitcoin as legal currency in El Salvador in 2021. His government has introduced policies to promote the use of Bitcoin, such as the development of Chivo, a digital wallet for Bitcoin ATM expansion, and has started planning the construction of "Bitcoin City," an autonomous city with a favourable tax regime, powered by the geothermal energy of El Salvador’s volcanoes.

I recently read a very interesting article about the size of the country’s BTC reserve, which you can read by clicking on this link (Italian article: https://it.cointelegraph.com/news/el-salvador-bitcoin-treasury-website). Below, I’ve highlighted the most important parts:

The country has an online Bitcoin treasury, which provides real-time data on the country’s Bitcoin reserves. According to the data from May 2024, the Central American nation holds 5,748 BTC, valued at approximately $360 million, with Bitcoin trading above $62,700. According to the website (https://bitcoin.gob.sv/it/), from the 6th to the 12th of May, El Salvador purchased approximately 7 BTC worth over $438,000, and in the last 30 days (April to May 2024), it added a total of 31 BTC valued at $1.94 million. Since 2021, El Salvador’s BTC investments have had an average purchase price of $43,097, and according to the web site https://nayibtracker.com/, with BTC trading above $62,000, El Salvador has made a profit of over $57.4 million on its Bitcoin reserves.

As the data shows, the financial strategy followed is known as the “1 BTC per day” plan, which likely started in November 2022. The goal is to purchase 1 BTC per day at an average price of $43,357, in order to get back to the pre-COVID economic conditions and potentially earning profits from "holding," or retaining these cryptocurrencies in the cloud. So far, the President’s and economists’ forecasts seem to be good: tourism in the country is increasing (according to some data, in 2022 the tourism sector saw a 6% increase in revenue compared to 2019. Here is the source: https://cryptonomist.ch/2022/11/18/el-salvador-investe-ancora-bitcoin/) and the crime rate is decreasing to historic lows. Experts believe this could lead the nation to economic independence: indeed, if Bitcoin were to reach a value of $100,000, this path could become a reality for El Salvador. But will it really be so? Can cryptocurrencies represent the economic future of a country? Let’s analyze, in some points, the positive and negative aspects of cryptocurrency trading:

• Buying and holding cryptocurrencies is a valid, fast, and modern alternative for making quick payments.
• It’s a different system from that offered by national banks, since it’s a way to invest money and hope for long-term profit. Cryptocurrencies are not controlled by governments or financial institutions, offering users greater control over their funds.
• They allow anyone in the world with Internet access to participate in the global financial system, potentially helping people in countries without a fully developed banking system.
• Transactions are recorded on a blockchain, a digital ledger that securely and permanently stores data and transactions, increasing transparency and reducing fraud risks, as user sensitive data is not visible.
• The last point is for technological innovations: The blockchain system, cryptocurrencies, etc., make progress and the development of new technologies and applications possible, being very useful for the population and entities for every payment.

Unfortunately, the perfect world doesn’t exist, so here are a few more points, which highlight some of the negative aspects of this world, which I think it’s important to reflect on:

• Cryptocurrency prices can be extremely volatile, changing almost every second. This can lead to significant profits if the trend is positive, but also substantial losses if the fluctuations are negative.
• Despite blockchain technology’s security, users can be vulnerable to hacking attacks and scams, and losing your private keys/passwords can lead to permanent loss of funds.
• Cryptocurrencies are often used for illicit activities such as money laundering, drug purchases (supporting organized crime), and financing terrorism.
• The cryptocurrency world is complex, and online guides or YouTube tutorials are not always sufficient for a full understanding.
• Cryptocurrency mining, a global system that generates cryptocurrencies through a virtual “mine”, is part of another category: although it may be profitable for users, it requires a lot of time, economic resources, and, first of all, too much energy, because of the large amount of electricity needed to operate the machines (often computers) that extract BTC.

We are in front of a significant phenomenon, and it will be very interesting to see the economic progress of a developing country like El Salvador. However, it is also important to consider that this economic initiative is part of a contradiction: on one hand, the country can afford such a large daily expenditure on cryptocurrency purchases, but on the other hand, the poverty rate among citizens is still too high (about 32.7% of El Salvador's population lives below the poverty line. Source: https://www.indexmundi.com/g/r.aspx?t=0&v=69&l=it).

So, more investment in education, healthcare, and infrastructure would be necessary to improve people's living conditions and ensure their well-being in the country. In any case, regarding cryptocurrencies, it is necessary to be well-informed and prudent, consider an adequate financial education, and balance potential benefits with possible drawbacks, avoiding any kind of reckless action.

And you, what do you think? If you were the president of a nation, would you allow the use of cryptocurrencies like in El Salvador? Do you believe that they are the future of the global economy?