El Salvador may soon become the first sovereign nation in the world to adopt bitcoin as a legal tender, Salvadorian President Nayib Bukele announced Saturday.
“Next week I will send to Congress a bill that will make bitcoin a legal tender in El Salvador,” he said in a video broadcast at the Bitcoin 2021 conference in Miami. “In the short term, this will generate jobs and help provide financial inclusion to thousands outside the formal economy.”
Officials there are partnering with digital payments application Strike to hammer out the logistics and build the necessary financial infrastructure to support bitcoin technology, according to Strike CEO and founder Jack Mallers, who presented Bukele’s video at the event. The blockchain-based application facilitates global transactions over the bitcoin lightning network, a payment protocol that speeds up bitcoin transactions by moving them off the blockchain, which also lowers associated fees.
Mallers, who said he was tapped by the government to help draft the bill, characterised Saturday’s announcement as a “shot heard ‘round the world for bitcoin.”
“What’s transformative here is that bitcoin is both the greatest reserve asset ever created and a superior monetary network,” he told conference-goers according to a Strike press release. “Holding bitcoin provides a way to protect developing economies from potential shocks of fiat currency inflation.”
In a series of tweets, Bukele said bitcoin could give a sorely needed boost to El Salvador’s economy, which is predominantly based on cash and remittances, or money sent home from migrants abroad. Currently, the U.S. dollar is the nation’s official currency. Roughly 70% of the population doesn’t have a bank account, he said, and adopting bitcoin would improve financial inclusion. He noted that the cryptocurrency could facilitate faster transfers for the billions of dollars in remittances that pour into the nation every year while also circumventing fees from intermediary services.
Remittances account for 23% per cent of the nation’s gross domestic product and hit a record high of nearly $US6 ($8) billion for the year 2020, according to the Associated Press.
“By using Bitcoin, the amount received by more than a million low income families will increase in the equivalent of billions of dollars every year,” Bukele tweeted. “This will improve lives and the future of millions.”
Additional details about the plan were not disclosed at the conference, and neither Bukele nor Mallers addressed the potential environmental impacts this bill may have. Cryptocurrency mining has come under increasing scrutiny for its massive carbon footprint, which an analysis by Digiconomist estimated to be roughly 59 megatons of carbon dioxide annually, putting it on par with all of Morocco’s emissions. New York officials have moved to ban the practice pending further study of its impact on the climate and local environment. Iran’s government instituted such a ban last month in the wake of widespread power outages in the Iranian capital of Tehran and other large cities.