Good day everybody,
Welcome to CryptoGod-1's blog on all things crypto. There has been a recent news story emerge regarding the 'home of Bitcoin.' El Salvador, and how they are planning to open an Embassy in the Untied States purely for Bitcoin. Here I will go into the details and look at how El Salvador has been doing in general with Bitcoin as its currency.
Bitcoin Embassy
The news was first released on the 14th of February 2023, when Milena Mayorga, the Salvadoran Ambassador to the United States, released a Tweet outlining the intentions. This would be only the second "Bitcoin Embassy" in the world, and certainly the very first of its kind in the United States. If El Salvador go ahead and open Embassy, it would be the first government to do so, and further embed their passion and interest in the worlds most popular cryptocurrency.
The Embassy will be part of a strategic cooperation with the government of Texas, with the intergovernmental partnership intending to collaborate on the development of new initiatives that seek to increase Bitcoin use. The Embassy will also be known as El Salvador's representative office, with El Salvador having become the first nation in the world to adopt Bitcoin as legal tender back in 2021 and now looking to further extend the reach and use of the 'digital gold.' In her discussions with the representatives of Texas regarding the Bitcoin Embassy, Milena Mayorga stated the following:
"During my meeting with the assistant secretary of the government of Texas, Joe Esparza, we discussed the opening of the second Bitcoin Embassy as well as the expansion of commercial and economic exchange projects. We also discussed the expansion of commercial and economic exchange projects."
Back in October 2022 El Salvador established their first "Bitcoin Embassy" in the city of Lugano, Switzerland. The southern region of Switzerland became the home for the worlds very first Embassy due to both the El Salvador and Switzerland being pro-crypto jurisdictions, meaning they established this partnership with an aim of working towards 'the establishment of a physical governmental presence in order to foster collaboration in education and research institutes relevant to Bitcoin.'
Bitcoin Embassy As Part of Lugano - https://en.cryptonomist.ch/wp-content/uploads/2022/10/lugano-el-salvador-bitcoin-1140x600.jpg
A former chief strategy officer at Blockstream, Samson Mow, is of the belief that the phenomenon of Bitcoin embassies popping up globally will be the next part of global adoption and awareness of the digital currencies and countries embracing Bitcoin. In his opinion these projects will require collaboration in an effort to create new alliances in locations that have accepted and embraced Bitcoin.
Texas Pro Bitcoin
Texas has emerged as one of the more crypto-friendly states in the United States. It has passed crypto-friendly legislation which aim to adapt the commercial laws towards a pro crypto basis, creating innovation through the use of blockchain and to digital asset regulations. It is also the home to many major Bitcoin and Crypto mining operations, such as Riot Blockchain, Core Scientific, and Genesis Digital Assets. They all have bases of operation in Texas, making it home to some of the most powerful Bitcoin miners in all of North America.
As Texas are looking and exploring new measures for a master plan on the growth of the blockchain business, this announcement if likely to be a further strong point in their case for adapting the digital currency. Their legislative initiative's overarching goal is to make Texas the cryptocurrency capital of the United States and in housing the first Bitcoin Embassy within the United States, they are firmly planting their flag in the race to become the USA's Bitcoin capital. As part of their overall strategy, it is believed they be making purchases made via Bitcoin exempt from sales tax.
Texas and Bitcoin Flags
El Salvador with Bitcoin So Far
As Texas is looking to get ahead of the rest in terms of Bitcoin in North America, it is important to look at El Salvador as a case example of how making Bitcoin a legal tender can impact a nation. In September 2021 the nation declared Bitcoin was to become its legal tender, and a year and a half later it is important to consider how this has impacted the nation.
First, it is important to consider the reasons why El Salvador adopted Bitcoin as national legal tender. The country had faced instability in the 1980s in many parts thanks to American investors, and soon after the nation abandoned its own currency, the peso, and “dollarized” through a process starting in 1993 and finalizing in 2000. While it gave the benefits of ensuring the economy was run on a relatively reliable instrument, it also meant El Salvador had no control over national monetary policy. To get away from the power and risks of inflation associated with the U.S. Dollar, El Salvador adopted Bitcoin as its currency. President Nayib Bukele was the driving force behind this, with efforts to encourage nationwide adoption of the cryptocurrency.
The initial decision was met with disapproval and scepticism from the international community. It is easy to comprehend why, but like all innovations it takes time for wider acceptance. In hindsight, the initial move was inspired as the inflation of the U.S. Dollar would likely have crippled El Salvador into a deep economic crisis. On the other side, the crash in Bitcoin's value during 2022 has meant that most of the bitcoin purchased by El Salvador is underwater and the decision by Bukele to invest national funds into Bitcoin was misguided. There have been good, bad, and awful events as a part of the change of monetary system in the nation, but it is still very early days.
As part of the rollout there was a welcome bonus of $30 dollar to all El Salvadorians who signed up, however there were many reports of identity theft and the bonus being drained before many had even signed up. Add that to the overall cost of converting the nations system, along with education for those who were now required to use it, and it certainly had a financial impact on the nation. Similarly, assuming the Tweets of Bukeke where he claims the nation has bought X amount of Bitcoin here and there, then it is likely that the national reserve is in a deficit of around $50 million or so due to the market downturn.
The upside was the international recognition brought to El Salvador due to their decision to adopt Bitcoin as a national currency. It has seen tourism spike with Bitcoin based events bringing in influencers and tourists alike, with visits up 81% in 2022 compared to pre-pandemic levels. On top of the benefits to the economy in that regard, El Salvadorians have also benefitted from the transaction fees being saved on those abroad sending money back to El Salvador. Through using Bitcoin their average fees have been 1.28%, compared to the international bank transfer fees to El Salvador averaged 2.85% in 2020. If this rate of savings continues, the country could have paid for its initial adoption cost within a decade.
There are also signs that El Salvador is becoming a desirable nation in terms of companies deciding to expand and operate there, mainly due to the high level of crypto users within the public. The publics higher level of understanding the day to day use of Bitcoin as an instrument of currency means that they are ahead of many other nations on this basis. According to fintech startup Structure.fi, El Salvador is an attractive prospect:
“Because the government has so publicly backed this technology by rolling out comprehensive regulations paired with education initiatives, the people in El Salvador are far ahead of many of their peers around the world,”
While there have been many reports of Bukele's government acting in an authoritarian way, especially with their 'Bitcoin Law,' this is an element which is difficult to discern the facts from the anti Bitcoin propaganda. Of course there are bound to be evils happening in a nation which is emerging from a horrific gang violence culture and civil war, the reports of silencing journalist through digital surveillance has been unsettling. However, the governments and nations ideas do not represent Bitcoin itself, they are merely the first to adopt it as legal tender. For all the negative press, it may end up being the reason why Bitcoin gets adopted in more nations down the line.
For now they are focused of portraying Bitcoin as the beautiful variant to their already beautiful nation. An example of how serious the nation is regarding the adoption of Bitcoin was how they sent their representative to the Miss Universe competition. Alejandra Guajardo was present as Miss El Salvador while wearing a costume representing “the evolution of the Salvadoran currency," with the costume featuring cacao beans, the colón, the U.S. dollar, and the Bitcoin symbol.
The Miss Universe contestant from El Salvador, Alejandra Guajardo - https://news.bitcoin.com/miss-el-salvador-features-bitcoin-in-miss-universe-2023/
On Friday the 10th of February 2023 the International Monetary Fund (IMF) issued renewed warnings towards El Salvador and its use of Bitcoin as a currency. They admitted the original risks of the country adapting the digital currency as legal tender did not materialise, but the use of the cryptocurrency still requires transparency and attention. In a statement the IMF claimed:
"Given the legal risks, fiscal fragility and largely speculative nature of crypto markets, the authorities should reconsider their plans to expand government exposures to bitcoin."
With the IMF having effectively closed its doors to El Salvador in terms of international financing when the nation adopted Bitcoin as legal tender in 2021, and while the IMF has continued to be sceptical of El Salvador's move, the nations Congress recently passed a law regulating the issuance of digital assets by both the state and private entities, showing they have no plans to abandon their adoption of Bitcoin.
However things progress and develop, El Salvador is not backing down in their efforts to put Bitcoin at the fore of its national agendas. While the nation have have made 'unrealised losses' to date, the optimism and hope is that the long term will be much brighter for the sun soaked nation. For now, they are making waves by collaborating and establishing their Bitcoin Embassy's abroad, with Texas the latest but likely not to be the last.
Have a great day.
Peace. CryptoGod-1.
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