Wednesday, September 22, 2021

Bitcoin in El Salvador: ‘Most people don’t know what it is or how it works’

first Amendment: 09/07/2021 – 17:55

Starting this Tuesday, businesses and individuals in El Salvador will be legally obligated to accept bitcoin as legal tender with the dollar, much to the dismay of the part of the population that fears suffering from the volatility of the cryptocurrency. The RFI asked three questions to economist Nathalie Johnson, a subject matter expert at Neoma Business School, who would find it interesting to observe this large-scale deployment of bitcoin.

By Abla Jaundi.

RFI: Will the Salvadoran government be able to expand the use of bitcoin?

Nathalie Johnson: That is the big question. Bitcoin (BTC) is not commonly used as a means of payment, despite the fact that its designers originally thought of it as a cryptocurrency. We have a large scale experiment here in which a country will adopt bitcoin as legal tender. It simply means that if a resident of that country wants to pay with bitcoin to a merchant, they are technically authorized to do so.

The difference between fiat and currency is that there is an obligation on the part of the person who is going to receive payment in bitcoins to accept it. Now, looking at the situation, and Salvador’s familiarity with bitcoin, it seems unlikely that the cryptocurrency will be of much use. one discovery [de la Universidad Francisco Gavida, nota del editor] Shows that a small part of the population is familiar with cryptocurrency. Most people don’t know what it is and how it works. And a vast majority simply reject the project.

RFI: What are you worried about?

Nathalie Johnson: The concern for those who have heard about it is that bitcoin is volatile. It should be remembered that El Salvador has been a “dollarized” country for many decades. A section of the population doesn’t see how having bitcoin as an alternative will make a difference to them.

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The good news is that not much will change from this Tuesday for the vast majority. If they feel like it, they will keep getting dollars. What may change is that the government wants to make payments in bitcoin, as it has been adopted as legal tender. This has led to some protests: people fear that their pensions will be paid in bitcoin in the future. It’s not on the agenda yet.

RFI: How can young President Nayib Bukele convince Salvador to adopt bitcoin?

Nathalie Johnson: To encourage them to do so, they have decided to give the equivalent of $30 in bitcoin to whoever opens it. wallet [monedero electrónico para almacenar criptoactivos]. But for now, doubts seem to prevail.

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If there are users, it will be interesting to see how this transition from dollars to bitcoin will facilitate in practice, reducing costs for users. This is really the key to using a currency: it has to be simple and cost-free, or very low-cost. In fact, this is the argument of the President of Salvador when he talks about the weight of the commission paid in the transfers of migrants.

Technically, bitcoin can significantly reduce transaction costs compared to the banking system. This is true on paper, but in practice, when there are many transactions in bitcoin, bottlenecks can also occur that lead to higher transaction costs.

Now it remains to be seen how the government implements its support plan. It has created a $150 million fund to facilitate the use of bitcoin, so that wallet be used on a large scale. It will be interesting to see the operational aspect of this reform.

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Bitcoin in El Salvador: 'Most people don't know what it is or how it works'
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