The Significance Behind El Salvador Adopting Bitcoin As Its National Currency
What You Should Know Even If You Don’t Understand or Use It
This past Tuesday, September 7th, bitcoin became officially recognized as legal tender in El Salvador, the first country to do so. Your first question might be, “Why did they adopt bitcoin in the first place”?
Why Would El Salvador Move To Bitcoin?
The answer is that El Salvador’s president, Nayib Buekele, was a proponent of the cryptocurrency as a way to improve financial inclusion and access to wealth for its citizens. Bitcoin provides a way for Salvadoran citizens to easily send and receive money from abroad since it is a digital currency. These remittances are depended upon heavily by their economy, representing 20% of El Salvador’s gross domestic product.
Using bitcoin, which is distributed on the blockchain, also results in the reduction of fees associated with financial transactions. It’s estimated, for example, that money service providers such as Western Union and Moneygram will lose $400 million in transaction fees due to El Salvador’s adoption of bitcoin alone.
The move is not without risk and Buekele acknowledged that there will be a “learning curve”. On the first day of the launch of the government’s digital wallet app, Chivo, which allows Salvadoran’s to transact bitcoin, there were snags. Subsequently, bitcoin’s price fell 10% that afternoon.
However, the rest of the world will have it’s eyes peeled on how El Salvador’s bold move works out, putting pressure on competing nations. Why? Because like most new technological advancements, early adopters are rewarded.
How Does This Effect You?
The adoption of bitcoin as legal tender in El Salvador cements the currency’s transition from being merely a store of value, much like gold, to a medium of exchange for everyday goods. Bitcoin was already on this path with companies such as AMC, Whole Foods, Etsy, and Overstock accepting it as payment. Bitcoin is also landing on the balance sheets of companies such as Square and the EU is close to establishing regulations overseeing cryptocurrencies. Slowly but surely, the adoption of Bitcoin is increasing and it’s volatility is starting to decrease, making the case that the cryptocurrency isn’t going anywhere, despite the naysayers.
In short, cryptocurrencies and the blockchain are here to stay and, like the launch of the world wide web in 1983, the faster you can wrap your head around it and understand it, the more likely you’ll be able to take advantage of it. The blockchain, on which Bitcoin is distributed, is poised to disrupt every industry that exists today. Why?
Advantages of Blockchain Technology
One of the biggest advantages of the blockchain and the cryptocurrencies that are distributed on it, is transparency. The blockchain is a public ledger not owned by anyone, similar to a Google doc that multiple people have access to. Anyone with a link can view it but to change any of the data would require the collusion of everyone on the network making it also more secure. Transactions must be confirmed by multiple computers across the network before they are recorded. Then, the transaction is encrypted and linked to the previous chronological transaction, like building “blocks” laid on top of one another, providing a “block chain”. This makes it very difficult for hackers or anyone to compromise the data. It also makes any discrepancies in a transaction easy to trace since the data is public across one network and linked chronologically.
As with almost any transaction, digitizing it makes it inherently more efficient and faster than transactions recorded on paper. Paper transactions are also prone to human error. However, one of the biggest advantages of transactions on the blockchain is reduced costs, one of the primary reasons El Salvador’s President advocated for bitcoin. Since all of the data on the blockchain is public and linked, there is less of a need for middlemen and third parties to verify, guarantee, or process transactions.
Technology that can increase security, transparency, traceability and efficiency while lowering costs will increasingly be adopted in more and more industries as these advantages are key to the profitability and survival of a business.
What You Can Do Now
You might be struggling to understand the technology behind bitcoin and the blockchain. It took me a long time to even grasp the basics! I’m no expert by any means but aim to learn as much as I can by reading articles, websites and journals.
Whether you work for a company or are an entrepreneur, the blockchain is inevitably going to effect your industry in some way. If you want to have a competitive advantage in your business or as a valued employee, it’s still early enough to become a knowledge resource and/or expert on blockchain. The best way to deepen your understanding of crypto and blockchain technologies is to read everything you can about it. Set a google alert with keywords that include your industry and “blockchain” and you’ll be able to watch how, when and where it affects your industry. Then, when the next country adopts bitcoin as its national currency, you’ll understand why and be able to share what you know about these fast moving technologies with others!
