By Landon Manning
A year has passed since the Republic of El Salvador adopted bitcoin as legal tender, and now the country looks towards its successes and its future as it continues to bet on the cryptocurrency.
The Central American nation shocked the world on September 7, 2021, as it announced that bitcoin (BTC) would be accepted as a legal currency, and that the government would be taking steps to facilitate its adoption and usage in addition to buying a stockpile of the asset. The move to adopt bitcoin was spurred by a number of reasons, not only to stimulate economic growth but also to radically fight for El Salvador’s economic independence. Before adopting bitcoin, El Salvador’s only legal tender was the U.S. dollar. Similar to the dollar, El Salvador is equally powerless to determine the value of bitcoin, but bitcoin holds the distinct advantage of being decentralized, with its monetary policy beholden to no government or corporate entity.
Now that this radical experiment has had a year to bear fruit, there are many lessons to be learned for the future of bitcoin adoption worldwide. One, of course, is that the mainstream economic establishment would first laugh at and then grudgingly respect bitcoin within the developed world, while coverage towards El Salvador has been overwhelmingly and consistently negative.
The attitude of press agencies is just one aspect of the attack on Bitcoin, however. The International Monetary Fund (IMF) has been taking an increasingly hardline stance towards the nation ever since its adoption. This comes as no surprise. The IMF is frequently accused of putting countries in a “debt trap,” and for good reason. Of the 89 countries that have received loans since the 1960s, more than half have had no further economic development, and more than one-third have in fact seen their fortunes shrink. Bitcoin and its adoption are a real thorn in the side of this establishment, and they are far from powerless to fight.
However, despite these portrayals, the data proves some inarguable benefits to the nation for betting on bitcoin. For starters, it is frequently treated as “proof” of bitcoin’s failure that only 20% of businesses use the currency by the one-year mark, but this state of affairs exists in a country where more than 70% of the population is unbanked. Even a fraction of that level of bitcoin adoption is unheard of on the entire continent, and bitcoin is penetrating into society with only a year into its adoption. State-sponsored wallets, gradual adoption and usage of the Lightning Network have all facilitated greater use on the individual level.
According to statistics, El Salvador has seen remarkable advantages in several fields in the past year. The country has largely rebounded from the pandemic, with tourism up 30% from pre-bitcoin adoption levels and the gross domestic product (GDP) has increased by 10%. Rates of inflation and emigration are some of the lowest in Central America, the country has more private investment than in the last 60 years, exports are up by nearly 20% and the nation has seen wide increases in remittances, a popular use case for bitcoin.
The nation has certainly come onto some hardships in the past year of walking the path of bitcoin adoption. Fluctuations in the bitcoin price have certainly cost the government some money and levels of adoption still have a ways to go. However, the government passed this initial bill with a supermajority of legislative support, and that support has not gone away in the first year of this experiment. El Salvador has, despite all detractors, managed to weather setbacks and criticisms, and can point to a series of concrete gains from the world’s number one decentralized internet currency. Now that the seal has been broken, any future nations that wish to join El Salvador will have a better idea of what setbacks they may face, and how to best maximize their talents. As El Salvador begins year two of its bitcoin adoption, the future ahead is looking bright.
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