Yesterday, El Salvador officially adopted bitcoin (BTC) as legal tender. Based on most of the coverage of that that I have seen, it seems that that is either an historic, forward-thinking move that will change the world forever, or a blunder of epic proportions that will bring the country to its knees. There is nothing new or surprising about any story involving bitcoin being divisive, as cryptocurrencies generally are a polarizing concept, but both sides of the debate should calm down here. The El Salvadorian government have added bitcoin as legal tender to run alongside the U.S. dollar, not to replace it, so what we will see play out in the coming months is an interesting experiment rather than an earth-shattering event.
Whenever changes to currency are made, people get upset. That is understandable because currencies are all about trust, and trust is best served by consistency, even if the new is demonstrably far better than the old. I grew up in the U.K. where, fifty years ago the currency was changed from an old system of pounds, shillings, and pence, to a simpler, decimalized system.
Even though I was only nine or ten at the time I remember the outrage some expressed. Looking back, of course, a system where each pound was made up of twenty shillings, each of which itself consisted of twelve pennies, was unnecessarily confusing. Replacing it with a simple 100 pennies to the pound really made no difference other than to simplify things, but that didn’t stop people at the time heralding the change as the start of a dark age for the country.
The change in El Salvador is not even that drastic. It does mean that. In theory, retailers are obliged to accept bitcoin payments, but it does not mean that all El Salvadorians are being forced to use bitcoin. Apart from anything else, that would be impossible in a country where nearly half the population have no internet access. That, alongside the volatility of crypto, forms the basis for complaints from those opposed to the idea of bitcoin as legal tender in the country.
That sounds reasonable, but a lack of access isn’t necessarily a reason not to make the change. Those that don’t have internet will simply stick with dollars as their currency, just as those in U.S. states that have passed laws making gold legal tender have done. Incidentally, in those cases, not having access to the kind of accurate digital scales that would be needed to make transaction in gold hasn’t hindered the adoption of the metal as legal tender, it has just severely limited the practical use.
The laws weren’t intended to force people to carry around gold bars and shave off some to pay for their groceries: they were more about a political statement and an image thing than anything practical. Similarly, a lack of internet access will restrict the number of people who can use bitcoin in El Salvador, but that isn’t an argument for not allowing others to do so, and the move there is more about projecting an image of a forward-thinking, tech savvy country than anything.
Given that, what will be most interesting is to see how many of those with access do adopt crypto. Personally, I think that number will be very low, and this will all turn out to be a storm in a teacup, but it will still have an impact beyond El Salvador’s borders. It will mean that multinational companies operating in El Salvador, such as McDonald’s (MCD) and Starbucks (SBUX), will be pushed into devising systems for accepting bitcoin and, once they do that, it opens up the possibility of them expanding that access globally. A writer for Bitcoin Magazine even shared on Twitter his experience buying a meal at a McDonald's using bitcoin.
The glitches on the first day that have received a lot of press were kind of embarrassing for the government, but of no long-term significance. Bitcoin’s status as legal tender in El Salvador is a bold move in some ways, designed, so the country’s President says, to reduce transaction fees and increase mobility of money in the country. Eventually it may serve that purpose, but for now it has the look of an attention-grabbing, statement-making move that will impact very few, and everyone should just calm down.
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