On Tuesday, El Salvador became the first country to adopt Bitcoin as legal tender, although this radical monetary experiment could pose risks to the emerging economy. On the first day, it already suffered teething problems when the government had to unplug a digital wallet to cope with demand.
September 7, 2021, will be forever etched in the history of Bitcoin as the day the first country adopted it as a legal currency. Digital money is now recognized by a nation-state as lawful monetary tender, being put in the same national status as the US dollar in El Salvador. Starting today, any Salvadoran will have the legal option to use Bitcoin instead of dollars.
President Nayib Bukele has stated late Monday that his government has purchased another 200 BTC before El Salvador’s formal adoption of the cryptocurrency. El Salvador now holds 400 Bitcoins, which are worth nearly $21 million at current prices.
“The process of #Bitcoin in El Salvador has a learning curve. Every step toward the future is like this, and we will not achieve everything in a day, nor in a month,” Bukele tweeted. “But we must break the paradigms of the past.”
El Salvador has partnered with digital finance company Strike to create the infrastructure required. Cryptocurrencies are held in digital wallets rather than through a traditional bank account, which means that people in poorer communities with less access to banks could use Bitcoin as a way to gain wider access to financial services. Some citizens have embraced the technology, while others are wary.
However, social organizations have asked the Salvadoran government to repeal the law, largely because they fear the extreme volatility of the cryptocurrency.
In June, the World Bank has rejected El Salvador’s request for help on the implementation of Bitcoin as a legal tender.
Later Fitch Ratings warned in August that El Salvador’s move poses a serious risk to its local insurance companies. As it said, Salvadoran insurers will be under pressure to quickly convert Bitcoin to dollars to avoid price risk; otherwise, they could face steep losses.