Bitcoin officially becoming legal tender in El Salvador is an unprecedented event, and, as such, it might as well have unprecedented outcomes. At the same time, China’s continuous efforts to ban cryptocurrency mining lead to a large-scale miner exodus out of the region. The mining landscape is changing, and the supply of cheap electricity, friendly government regulations and taxes, and available mining infrastructure will be critical in how it will develop in these next months.Why El Salvador’s Decision Makes Sense
Twenty years ago, in 2001, El Salvador’s government decided to stop issuing its national currency, the Colón, and established the US dollar as the national currency. The aim was to achieve macroeconomic stability, stop inflation and avoid devaluation.
However, the exchange rate fixed by the government wasn’t proportional to each currency’s purchasing power, causing significant loss among the population, who saw their savings and salaries affected. In addition, being unable to define its monetary policy, the country lost maneuverability, depending exclusively on the FED decisions.Bitcoin and US dollars are both legal tender in El Salvador
Eventually, job generation was affected. The lack of possibilities drove young people to look for new opportunities abroad, mainly in the United States. Nevertheless, those who weren’t able to emigrate faced terrible financial conditions.
In ES, ~70% of the population doesn’t have access to a basic bank account. These people have enormous difficulty accumulating wealth and even make a living. Hence, remittances from abroad are the primary source of income of ~25% of households and 16% of the GDP. Of course, the big winners in this scenario are banks and payment companies, which charge high fees for their services.
Enter Bitcoin, the most efficient, decentralized monetary network in history. An invaluable tool for an economy like ES — and frankly, most Latin American countries. Wit...