" class="no-js "lang="en-US"> EXCLUSIVE: Bitcoin as National Currency: Good? Bad? What does it mean?
Friday, March 29, 2024

EXCLUSIVE: Bitcoin as National Currency: Good? Bad? What does it mean?

This article was informed, and made possible, by the lovely people at MoneyTransfers; you can find the following press release and article (with some additional information) here.

When looking at the financial world today, a surprising piece of news might come into view. El Salvador has recently announced, in June 2021, that they will be making cryptocurrency their national currency. In particular, Bitcoin. That means anyone there could pay for services and goods through Bitcoin, just as they would with the US Dollar. It became legal tender. There’s an underlying goal beneath this, though, which is to make El Salvador a crypto investment hub. It’s an ambitious and progressive step forward.

But is it the right step forward? That’s what I want to debate. Are there sufficient enough benefits to making Bitcoin their national currency? How much, or how little, does it outweigh the widespread use of physical cash? And are we ready for such a step in this direction?

Let’s break it down step-by-step.

Benefits to Bitcoin & Crypto.

There are plenty of potential up-sides to this declaration. By pushing for Bitcoin to become more widely accepted and used within the country, it can greatly benefit those who do not have bank accounts. While the use of cash is an option, cash is by no means secure. Bitcoin is nigh-impossible to crack, on the other hand, which can put a person’s mind at ease. What better way to offer security than by currency that can’t be tampered with, censored, or prohibited?

And it doesn’t stop there.

Traditional payment methods, be it cash or online banking, are subject to transaction and conversion fees. It’s a certainty. Cryptocurrencies, meanwhile, only treat such fees as a possibility. It depends on what crypto wallet one uses to buy coins and exchange money. So, in the best scenario, imagine having to pay exactly nothing in terms of transaction and conversion fees. Bitcoin makes that a possibility.

By the way, no, we’re not done yet. I’ve still got more points to make.

Did you know that more than half of El Salvador’s population are unbanked? That is to say, approximately 70% of their people do not possess basic financial services such as bank accounts and credit. Many of these people might have only cash to their name. So what does Bitcoin mean for them? Holding a crypto wallet means that they can have a bank account without having a bank account.

In other words? Financial services, from the basic to the advanced, open up to them. Sending money to people locally or across the world. Receiving interest on their crypto coins. Being able to store their money in a digitally secure location. Building their credit score. It goes on.

On the Other Hand…

There are downsides. Bitcoin isn’t perfect. Crypto, as a whole, isn’t perfect. So what can we identify as problems so far in the field? I’d be foolish not to mention the biggest one.

Volatility.

I might buy coins valued at £1.00 each. What coins I buy isn’t important for this example, so hear me out. Let’s say I buy 50, with the intention of sending those to you. I’m trying to pay you £50 through cryptocurrency. You get those coins. But, in such a short amount of time of receiving those coins, the value has dropped to £0.50 each. You’re now only receiving £25. It’s not something you can control. It’s not something you can even predict. Hell, you might even find that those coins are now worth £2.00 each. You just got double the value.

These are some wild examples, sure, but how might you feel about that?

If you feel good, then no harm done.
If you feel a little cheated? That’s natural.

Coming back to the original point, before I get wild on analogies and examples, cryptocurrencies are notoriously volatile. You’re not wholly in control, or even aware, of a coin’s worth. This is bad. More than anything else here, this is what you should be considering. Is that worth it?

Volatility isn’t the only concern I have for El Salvador, though. It’s the limited supply.

Bitcoin is limited to a supply of 21 million. By now, we only have approximately 2 million left to mine. Historically, the supply of traditional currencies such as the US dollar has changed to suit economic and population growth. That means these currencies are more stable, more reliable, in the long run, and there isn’t a worry about supply or demand. Compare that to Bitcoin, where we could see drastic changes in the economic climate within the next year or two.

What might happen when all those coins are mined? It could fall in value. It could rise in value. We’re touching a little bit on the volatility issue again, sure, but not entirely. Imagine if there were only 21 million US dollars in the world. El Salvador, in my opinion, needs a plan for how to tackle that issue when it arises. They can’t ignore it. Sure, keep those traditional currencies, but because they’re adopting Bitcoin then they need to have a plan for the potential scenarios.

And finally, there’s another point to consider. Environmental impact. Mining cryptocurrencies, especially Bitcoin, takes such a vast, enormous amount of energy. It’s unclear how we might be able to fix this issue, but it’s a concern that needs to be addressed.

Good? Bad? Final Thoughts.

I believe that this is a step in the right direction; it’s not without flaw, however, and we should await further details with cautious optimism. Tackling this properly could mean a great deal for Bitcoin, and other cryptocurrencies, which would allow it to become more mainstream in today’s increasingly digital world.

One has to wonder, though, why El Salvador’s focusing on Bitcoin instead of something such as a “stablecoin.” It tackles the largest issue with cryptocurrencies, which is the volatility, by remaining at a fixed value no matter what happens. This removes the risk. There are a variety of stablecoins, each of which peg their value to an already existing external value. It might be a traditional currency. It might be a commodity or asset. Anything that has a far more stable price, there’s probably a stablecoin for it now.

This offers the best of both worlds. You have the security, the accessibility, and the potentially fee-less aspects of cryptocurrency, but without the price volatility and the limited supply. And because mining stablecoin isn’t going to be as energy intensive as Bitcoin? There isn’t as much of an environmental impact.

We have to wait and see what the financial impact this’ll have on El Salvador. I’m keeping an eye on the subject, because we’ll really know more of the impact by September, by October, and beyond that. Cryptocurrency, as I’ll talk about until the day I perish, is gaining momentum and, even after ten years, still has so much room to grow.

So I’m cautious. I’m optimistic. I’m cautiously optimistic.

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