Recently, many cryptocurrencies, including Bitcoin, have experienced extraordinary depreciation. The value of Bitcoin, which exceeded $ 67 thousand in November, fell to $ 21 thousand.
The crisis, which affects investors worldwide, is putting pressure on the government in the Central American country of El Salvador, which accepts Bitcoin as a “legal currency”.
El Salvador, which has chosen to invest heavily in Bitcoin for a while, legalized the use of cryptocurrency in the country 9 months ago. The use of Bitcoin was also encouraged in daily life in the country.
These days, the people of El Salvador can use Bitcoin for their daily purchases such as food, clothing and gas, and even buy a house with crypto money.
The example of El Salvador tells us very well the evolution of cryptocurrency, which was invented on internet forums in 2008.
With the decision of El Salvador President Nayib Bukele to convert Bitcoin into a legal currency, all businesses in the country now have to accept it in addition to the US dollar.
At the same time, almost $100 million of public funds are used in the country’s Bitcoin investments.
However, the cryptocurrency’s depreciation over the past week has sparked public debate over how good an economic policy such an economic policy is.
“The financial risk is very low,” said El Salvador’s Finance Minister Alejandro Zelaya, as the country’s 2,300 bitcoins are down almost 50 percent these days.
bitcoin beach
El Salvador’s Bitcoin movement started in a small fishing town called El Zonte in the south of the country. In 2019, an anonymous person started making large donations to a group of cryptocurrency enthusiasts in the town, and stipulated that they would not convert these donations into dollars.
The identity of this mysterious person is still unknown, and the donation to El Zonte still continues.
The idea behind these donations is thought to be to create the world’s first Bitcoin economy.
In this new economic model, it is envisaged that people can be paid with Bitcoin, a financial system that operates entirely over the internet, and a livelihood can be made with Bitcoin.
This is a pretty radical dream. In the rest of the world, Bitcoin can only be used for online purchases, beyond that it is not yet accepted.
Nearly $350 billion has been donated to El Zonte to date, and the seaside town has been nicknamed Bitcoin beach.
Katerina Contreras was one of the first to receive donations. She started taking lifeguard training 2 years ago. The institution providing the education covered the transportation and meal expenses of its students with Bitcoin.
Katerina, who started working as a lifeguard after completing her education, was also paid in Bitcoin.
In El Zonte, business owners explain that the number of people visiting the town has increased, wondering about this unique economic model in the world, and that Bitcoin tourism has become popular.
However, it is said that in the rest of the country, Bitcoin is not used at the same level.
As you move away from the Bitcoin coast, the use of the cryptocurrency is declining. More than half of the businesses in El Zonte accept Bitcoin, while in the capital city of San Salvador in the north of the country, this rate drops to about 25 percent.
Digital Bitcoin wallet
Cash still dominates in El Salvador, with more than half of El Salvadorans still having no bank accounts.
The government says it will not force businesses in the country to use Bitcoin, but it does provide some incentives for business owners to do so.
President Bukele has invested approximately $200 million in Bitcoin from the state budget to date. Much of that has also been used towards a digital Bitcoin wallet called Chivo.
Those who download the Chivo app to their electronic devices are given $30 worth of Bitcoin. The application has been downloaded by 4 million people in a country with a population of 6.5 million.
However, after downloading the application, it is determined that the usage rate has decreased, and the government is looking for new methods as a solution.
For example, it was announced in February that when the country’s most advanced animal hospital opens, all examination and surgery payments will be made through the Chivo application and will be only 25 cents.
‘**No transparency**’
The International Monetary Fund (IMF) is demanding that El Salvador reverse its decision to use cryptocurrencies as legal currency, saying it is a very unstable policy.
Local economist Tatiana Marroquin thinks the government doesn’t even have the resources to help people in need in the country, and it’s not right to take such a risk.
Marroquin also says that the government is not transparent in this process:
“We don’t know exactly when, and for what money, the government bought Bitcoin.”
Tourism Minister Morena Valdez states that despite the decline in Bitcoin values, El Salvadorans trust the government:
“We know that our president made the right decisions at the right time. People trust the course of the country’s economy and his decisions.”
Before Bitcoin’s decline that started in May, some other countries in the world stated that they wanted to follow the roadmap drawn by El Salvador.
However, the only country on this path was the Central African Republic.
Announcing this new decision in April, President Faustin-Archange Touadéra used the phrase “Mathematics is a universal language, Bitcoin is a universal currency”.
bitcoin city
El Salvador wants to take the Bitcoin movement further.
President Bukele stated that he aims to establish a ‘Bitcoin city’ on the slope of a volcano, where a giant Bitcoin mine will be operated with geothermal energy.
Bukele stated that he will sell about $1 billion worth of “volcanic debt securities” to fund the city of Bitcoin. State officials said they were confident the necessary funding would be available.
However, the recent collapse of crypto money continues to put pressure on the government of El Salvador, which has bet on Bitcoin with all its cards.