Amid external doubts and protests, Bitcoin officially became legal tender in El Salvador

Author: Richard Lee

Today, El Salvador's "Bitcoin Law" officially takes effect, marking the first time Bitcoin has become legal tender in a sovereign nation and representing a significant milestone in Bitcoin's history.

El Salvador's President Nayib Bukele also announced on Twitter that the government purchased an additional 200 Bitcoins yesterday, bringing the total held by the government to 400 Bitcoins, currently valued at nearly $21 million.

Previously, President Nayib Bukele submitted a legislative proposal to Congress regarding "making Bitcoin the legal tender of the country." On June 9, Nayib Bukele announced on Twitter that the country's Congress passed the bill with 62 votes in favor, 19 against, and 3 abstentions, and the law is set to take effect within 90 days, by September 7 at the latest.

Located in Central America, El Salvador has long relied on remittances, leading to a phenomenon of "dollarization" in its economic system. Zhou Ziheng, an associate researcher at the Institute of Finance of the Chinese Academy of Social Sciences, pointed out that since the COVID crisis, under the loose monetary policies of the Federal Reserve and the U.S. Treasury, countries like El Salvador have suffered from severe "currency erosion," making the legalization of Bitcoin a pragmatic strategy aimed at "de-dollarization."

The bill has sparked controversy both locally and internationally, with citizens staging multiple protests, including a march of hundreds last Friday. According to Decrypt, a poll indicated that about 77% of the population rejects President Bukele's Bitcoin law, with most remittance recipients and businesses preferring to deal in U.S. dollars rather than Bitcoin.

In June, the El Salvador government applied to the World Bank for technical assistance regarding "Bitcoin legalization," but according to the BBC, the World Bank rejected the request due to concerns over the transparency of Bitcoin mining and its environmental impact. Additionally, the International Monetary Fund (IMF) expressed worries that the move could have adverse economic and legal implications and further widen the yield spread on the country's bonds.

Subsequently, the bill continued to advance locally. On June 25, Nayib Bukele announced that the El Salvador government would provide $30 in Bitcoin to each citizen, but the government would not mandate residents to accept Bitcoin as a payment method.

On August 31, the El Salvador Congress announced the approval of a $150 million Bitcoin trust fund, funded by the Treasury, with the El Salvador Development Bank responsible for managing the fund.

Today, the official Bitcoin digital wallet of the El Salvador government, Chivo Wallet, was officially launched. According to Reuters, there are at least 200 ATMs and 50 related consultation centers in the country where users can deposit and withdraw without paying a commission.

However, given the previous protests by the citizens, it remains to be seen how the usage rate of Bitcoin in the country will evolve in the future.