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Carlos Carcach, a professor at El Salvador`s Superior School of Economics and Business, pointed out that Bitcoin is extremely volatile, meaning investors “run the risk of getting rich and poor the next day.” But Carcah added that although the introduction of cryptocurrency “was neither necessary nor practical. As long as there is someone who accepts payments with Bitcoin, just like they accept dollars, there would be no problems. On June 5, the President of El Salvador announced in a pre-recorded video at the BITCOIN 2021 conference in Miami that El Salvador would be the first country to introduce bitcoin as legal tender. The announcement was made without the knowledge of Salvadorans. The 8. In June, the Ministry of Economy submitted a bill to the National Assembly, which approved it and published it in one day – an easy task since the executive party has a super-majority in the legislature. Bitcoin became legal tender on September 7, 2021. “I just went to a McDonald`s in San Salvador to see if I could pay for breakfast with Bitcoin, tbh expects to be told no,” Aaron van Wirdum said in a tweet retweeted by Bukele. He said the idea was to build a bitcoin mining center around the country`s geothermal potential. He also said El Salvador would offer citizenship to people who showed evidence that they had invested in at least three bitcoins. Cryptocurrency theoretically provides a fast and inexpensive way to send money across borders without relying on the remittance companies typically used for such transactions. It is not clear what proportion of transfers sent to El Salvador are included in Bitcoin. Father José María Tojeira, director of the Institute of Human Rights at the University of Central America, said that very few Salvadorans have the technical ability to access bitcoins.

Although Bukele claims that about 70% of Salvadorans do not have access to traditional financial services, the use of cryptocurrency for remittances around the world is uneven. Converting local currencies to and from Bitcoin often depends on informal brokers, prices are volatile, and buying and selling is a complex process that requires technical knowledge. Converting local currencies into bitcoins often depends on informal brokers, while trading often requires technical knowledge. The European Union recognizes Bitcoin and other cryptocurrencies as crypto assets. It is not illegal to use Bitcoin within the EU; However, the European Banking Authority, the Union`s monetary regulator, has stated that crypto asset activity is beyond its control and continues to warn the public and businesses about the risks of cryptocurrency. Canada maintains a generally favorable attitude to Bitcoin like its neighbor to the south, the United States. Bitcoin is considered a commodity by the Canada Revenue Agency (CRA) for income tax purposes. This means that any income from a transaction with Bitcoin is considered business income or a capital gain and must be reported as such.

The peer-to-peer digital currency Bitcoin debuted in 2009, introducing the concept of decentralized finance to the world. While tax authorities, law enforcement agencies, and regulators around the world are still debating how to control it, many consumers are wondering if they can legally use Bitcoin. A recent survey by the Universidad Centroamericana José Simeón Cañas, a Jesuit college based in El Salvador, found that 67.9% of people disagreed with the decision to make Bitcoin legal. Many respondents said they didn`t know how to use cryptocurrency, according to the survey. The law was passed by the Legislative Assembly on June 9, 2021 with a majority of 62 votes out of 84. Bitcoin was launched on September 7. September 2021 legal tender,[5] 90 days after the publication of the law in the Official Journal,[15][16] making El Salvador the first country to have Bitcoin as its legal tender. [5] [17] Bitcoin has joined the US dollar as El Salvador`s second official currency. [18] The New York Times. “El Salvador becomes the first nation to make Bitcoin legal tender.” Retrieved 14 December 2021. The use of Bitcoin as a currency in El Salvador has been experimented with since at least 2019, and current President Bukele expressed interest in Bitcoin when he was mayor of San Salvador in 2017.

Bloomberg News reported in June 2021 that Bukele and some members of Nueva`s Ideas party had owned Bitcoin for years. [9] The use of cryptocurrency as legal tender – alongside the US dollar – will come into effect in 90 days and the Bitcoin/Dollar exchange rate will be set by the market. Salvadorans will be able to pay their taxes in Bitcoin, and “any commercial agent” will be asked to accept cryptocurrency as a means of payment, unless they do not have access to the necessary technology. Bukele also pointed to a 2017 tweet from him before running for president proposing to use Bitcoin. Beyond the botched implementation, Bitcoin also poses challenges as a local currency. To design these challenges, compare dollarization to “Bitcoinization.” On 1 January 2001, El Salvador introduced the United States dollar as legal tender because of the close economic ties between the two countries: the United States is El Salvador`s main trading partner and the main source of foreign direct investment (FDI). In addition, nearly three million Salvadorans have emigrated to the United States, and by 2021, remittances will reach $7.3 billion, or more than 25 percent of El Salvador`s GDP. The monetary reasons for the introduction of Bitcoin, on the other hand, are much less obvious.

Before the current monetary experiment, Bitcoin was almost non-existent in economic transactions in El Salvador. While dollarization has eliminated currency risks and the US dollar is a relatively stable currency, Bitcoin is extremely volatile and carries currency risks. Dollarization has also eliminated the need for foreign exchange and its costs, since the US dollar is an international reserve currency. Meanwhile, Bitcoin is still only marginally used in the global economy. The U.S. dollar is backed by the U.S. Treasury and the Federal Reserve, and thanks to dollarization, El Salvador has been backed by the strength of both institutions. Bitcoin, on the other hand, is distributed via a payment mechanism without a central authority supporting its value. Finally, the government argued that under the new policy, Salvadorans will not have to pay fees when sending remittances to their families, as the government`s Chivo wallet will not charge such fees; While this is true, all the costs associated with operating and managing the system are backed by taxpayers` money, whether they use the service or not. In the first fifty days after the introduction of Bitcoin as El Salvador`s legal tender, several operational and regulatory errors occurred. First, in order to implement Bitcoin as legal tender, the government had to create a digital wallet in a short period of time – software that stores user information, payments and currency holdings – called chivo wallet.

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