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El Salvador’s bitcoin experiment

El Salvador passed legislation to make Bitcoin – the largest of all the cryptocurrencies – as legal tender.

It accepted the proposal of President Nayib Bukele to recognise Bitcoin as a medium of exchange to facilitate online transactions.

The Central American nation became the first ever country around the globe to take this step.




Why El Salvador legalised Bitcoin?

Nearly 70% of Salvadorans do not own traditional bank accounts, therefore this is one way to increase accessibility and boost digital payments to be on par with the future.

Another core reason to adopt cryptocurrency was to cheapen foreign remittances. Transactions fees are very low for international payments.

About 20% of El Salvador’s GDP comes from money sent back home by expatriates. These payments take days to process, but with Bitcoin it can happen instantly.



“It will bring financial inclusion, investment, tourism, innovation and economic development for our country,” President Bukele said.

“If 1% of it is invested in El Salvador, that would increase our GDP by 25%.”

Bitcoin serves as an excellent reserve asset, thus it aids or protects developing nations from shocks of currency inflation.

Also now since Bitcoin gained legal recognition and support, it won’t attract any capital gains tax on.

Downsides of El Salvador legalising Bitcoin?

The cryptocurrency market is highly volatile in nature. Since it is decentralised it is subjected to massive falls and spikes. One using it definitely needs to adapt to the risk of being rich today and poor tomorrow.

It is not reliable or suitable for day to day payments when it comes to necessities. Transaction fees for small purchases may be way higher than the cost of the products or services itself.

It may facilitate money laundering and other offences as there are no policy or reforms governing it. Bitcoin gives people the advantage of hiding their identities and intentions.

What does it mean for cryptocurrency?

El Salvador’s legalisation of Bitcoin is definitely an upgrade of its monetary status. It adds faith and confidence in such volatile currencies. It also is one way to do away with the global reliance on the US dollar. The legalisation may push more nations to accept cryptocurrencies.