Thousands have taken to the streets in El Salvador to protest the country's acceptance of Bitcoin as legal tender. The protests have demonstrated a lack of confidence among citizens against this move, as many of them are still unfamiliar with crypto-currency.
On 7 September El - Salvador became the first country to accept bitcoin as a legal tender. Put in simple words legal tender is a medium of exchange recognized by the government; which means businesses will be obliged, wherever possible, to accept the controversial digital coins as payment.
The proposal is being advocated by the government as a strategy to encourage economic development and job creation. President Nayib Bukele also claimed that cryptocurrency will help Salvadorans working abroad to send money back home.
El Salvador's government offered $30 (£22) free bitcoins to use its national wallet, which is accessed via an online app.
But then why the protests?
Salvadorans accuse the President of using authoritarian means to tighten his grip on power and feel that this is a measure to distract people from the government's controversial rule. Furthermore, a survey by the Central American University (UCA) found out that only 4.8% of the 1,281 studied, understood the technology behind Bitcoin and how it is used. This added to the protest as people were not comfortable with using this currency.
The World Bank also turned down El Salvador's request for assistance with the implementation of Bitcoin as a legal tender expressing its worries about Bitcoin mining's transparency and environmental impact.
IMF added by saying it saw "macroeconomic, financial and legal issues" with El Salvador's adoption of Bitcoin.
There are a number of problems to consider when you want to convert a cryptocurrency to a legal tender.
Bitcoin has extremely high volatility. The value of the currency has risen and fallen dramatically in the last year. It went from about $10,000 for a single coin in September 2020 to a high of $63,000 in April 2021 then falling to $30,000 in July.
Bitcoin is innately problematic as a payment method since it is extremely expensive for small transactions.
The citizens and common man are unaware of the blockchain systems works and hence do not trust the concept.
The high volatility can become a major issue for poorer citizens.
According to Neil Wilson, chief market analyst at Markets.com, this step appears to be nothing more than a publicity stunt by the dictatorial leadership.
Considering converting a digital currency into legal tender is a huge step. Especially when it comes to blockchain which is built on such a complex network that not everyone can understand.
This edition of econSHOT is proofread by Elizabeth Annie Sleeba . The thumbnail art is designed by Alana Biju.
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