On 7th September in 2021, El Salvador officially made Bitcoin a legal tender, making it the first country to achieve that feat. This means the citizens can use Bitcoin to pay taxes, settle debts using cryptocurrency alongside the legal fiat currency. It has also expanded payment options for goods and services.
The government bought 400 Bitcoins worth $21 million to boost cryptocurrency adoption in the country. The citizens receive $30 worth of Bitcoin after downloading Chivo – a government-supported Bitcoin wallet.
Most traders expected the development would trigger a surge in Bitcoin price. Surprisingly Bitcoin fell from $52,000 to $42 000. The good news is that it has recovered some value and is currently trading at $45,000. Despite this current decrease in price, various cryptocurrency price predictions forecast for the number one coin to increase in value as much as twofold before the end of this year.
Businesses Accepting Bitcoin Payments
Bitcoin is now recognized as a legal tender meaning El Salvadorians can now use the cryptocurrency to make payments. It is worth noting the president, Nayib Bukele, has reiterated that citizens will not be forced to use Bitcoin. However, all businesses are expected to accept Bitcoin payments if the customers prefer using e-currency. Only companies without supporting technology are exempt from the law. For example, a vegetable vendor is not obliged to accept digital currency payments.
In a tweet, the president reported El Salvadorian could purchase their favorite afternoon dessert and coffee with Bitcoin. Some of the companies accepting Bitcoin payments include McDonald’s, Starbucks, and Pizzahut.
American fast-food giant McDonald’s is one of the food giants accepting Bitcoin payment for its products. The chain store has partnered with a California-based payment processor OpenNode to process Bitcoin payments. El Salvador citizens can use the digital currency to pay in all McDonald’s 19 outlets across the country.
Users have the option of paying for food orders in person using OpenNode’s QR code. Alternatively, they can make online payments or through the delivery app.
OpenNode Head of growth Julie Landrum said El Salvador’s decision is a significant milestone in the growth of Bitcoin. She added that supporting Bitcoin payment in one of the most popular and successful food chains globally will enable them to demonstrate the ability of their Lighting Network technology.
The whole world had an eye on the Central American country to see how the development would unfold. Aaron van Wirdum went a step further to buy coffee in McDonald’s. The Bitcoin magazine journalist shared his breakfast with Bitcoin experience in a tweet of him enjoying a “cup of his traditional Desayuno ”.
It didn’t take long before photos and videos surfaced online of customers scanning QR codes to pay for coffee using Bitcoin in El Salvador. According to the president, the move by McDonald’s to accept the cryptocurrency would boost the adoption of Bitcoin and its operational success.
Like McDonald’s, Star Buck added Bitcoin to the payment system soon after El Salvador declared the cryptocurrency legal tender. The coffee chain is an addition to the number of global businesses accepting Bitcoin payments. While McDonald’s is using Open Nodes, Starbuck Bitcoin payments are processed by Guatemala-headquartered IBEX Mercado.
Pizzahut is yet another big company accepting Bitcoin payments in El Salvador. This is in line with the government regulation, directing all businesses to accept Bitcoin payments. Therefore, El Salvadorians can walk into the multinational chain restaurant, order a pizza, dessert or wings and pay with Bitcoin. Sounds interesting? We thought so too!
Open Node is engaging other El Salvador companies to enable Bitcoin payment. Walmart, Nike, and other big brands are expected to follow suit and accept Bitcoin payments.
Step in the Right Direction
In a nutshell, El Salvador citizens can pay taxes, debts, and fines using Bitcoin. In addition, the crypto can be used to pay for shopping, licenses, and taxi service. In other countries, such as South Africa, bitcoin enthusiasts can use Bitcoin for nearly none of these services. However, given that SA citizens still prefer trading forex over bitcoin, especially with forex brokers with zar base currency, this should not come as a big surprise.
With a 70% unbanked population, making Bitcoin a legal tender could help El Salvador citizens transition to a formal economy. Also, international remittance is a major source of income for the country. Bitcoin will, therefore, enable people to receive remittances quicker and cheaper. El Salvador could also benefit from “Bitcoin tourism.” In other words, people could visit the country to get the first-hand experience of paying with Bitcoin.
The good news is that El Salvador has installed 200 machines to enhance Bitcoin conversion to dollars and withdraws from Chivo commission-free.
Dealing With Challenges
While proponents hailed the movement as innovative, critics argue the move could promote money laundering in the country. The other issue is dealing with the speed. BTC transactions require updating the blockchain, which could take relatively long due to network congestion.
Another main challenge is transaction fees. According to Ternio General manager Keith Johnson, buying a cup of coffee could cost up to $20 in network fees. This definitely doesn’t make any economic sense. However, the cost depends on several factors such as transaction volume. This means that transactions are cheaper when the blockchain network is less congested. Similarly, the fees reduce significantly, if you are willing to wait for a longer processing time.
Bitcoin’s high volatility also poses yet another challenge. With no asset backing, the cryptocurrency value could plummet massively and throw the country’s economy into disarray. Daniel Hercules, a taxi driver in the country, has been accepting Bitcoin payments services. Speaking to BBC, he explained his worry about Bitcoin’s stability. He argued his hard work would go down the drain if cryptocurrency came crashing down with his savings.
Despite the growth potential of Bitcoin, many people are still skeptical about using the digital currency. 68% of citizens are against the introduction of Bitcoin as a legal tender. Protests have also been witnessed to oppose the move.
The world is now watching how cryptocurrency will affect the country’s economy and change the lifestyle of citizens. El Salvador is definitely the pioneer in accepting Bitcoin as legal tender, and this move could revolutionize payments. Other countries could join in and declare Bitcoin a legal tender in their jurisdiction.