El Salvador Bitcoin Adoption
There is a lot of debate around whether cryptocurrency coins or tokens will ever be considered legal tender. This debate is between die-hard cryptocurrency believers and skeptics who believe that the entire cryptocurrency market is just a bubble waiting to pop. After more than 10 years since Bitcoin’s inception in 2009, cryptocurrency and blockchain technology have been explored in a multitude of use cases - some to have been believed to be impossible during the early stages of Bitcoin’s inception. Regardless of the skepticism around the cryptocurrency market, the cryptocurrency space continues to make strides towards mass adoption, even though there are occasional market retracements. Arguably one of the biggest events to occur in the space is El Savador’s decision to start accepting bitcoin as legal tender. In today’s article, we will analyze whether or not El Savador’s Bitcoin adoption is a sign of things to come or not.
An Overview of the Third World
Third-world countries, also referred to as developing countries, often do not have access to the level of infrastructure that developed or first-world, countries like the United States do. This could be due to a number of reasons such as poverty, governmental corruption, restricted access to resources, etc. The poor quality of infrastructure in developing countries can mean that citizens of these countries don’t have access to basic luxuries that we take for granted, such as a bank account. This leaves citizens in these countries “unbanked” and not part of the global banking system - leaving them to resort to alternative financial services that are more than often costlier than traditional banking services. These citizens will continue to have to overpay for services that the rest of the world has access to unless there is a way to bank these unbanked citizens.
Banking the Unbanked
Building on the previous paragraph, citizens of developing countries pay for financial services that are unreasonably more expensive than traditional banking services because they live in countries with poor infrastructure - restricting their access to traditional banking services. As you may recall, these citizens are referred to as “unbanked”.
Cryptocurrency poses an opportunity for these citizens to become banked. The main purpose for the creation of cryptocurrency was to give people across the globe access to financial services that were once out of their reach. Expanding on this purpose, the vision of cryptocurrency and its underlying technology - blockchain - was to create a financial system that was not restricted by the lack of infrastructure in developing countries, and that broke away from centralized control that may have influenced the level of access to the legacy system. Now with this vision becoming a reality, anyone across the globe has access to this new, decentralized financial system with a lowered barrier to entry. By simply having a smartphone and an internet connection, anyone can access and start transacting on a blockchain network using its native cryptocurrency. This lowered barrier to entry makes blockchain and cryptocurrency technology a more accessible financial system. But that’s not all! The cost of transacting and using this new financial system is considerably lower than that of the traditional financial system that neglects a majority of people across the globe.
The Potential for Cryptocurrency in Developing Countries
70% of the global population resides in developing countries. This means that they live in countries that don’t have the infrastructure that other, more developed, countries, like the United States, do. As mentioned, this also means that these people have a good chance of being “unbanked” - leaving them to pay higher fees for financial services than they should. Other problems that people in developing countries face apart from a poor level of infrastructure is high inflation - which leads to higher living costs, and high levels of corruption by governing bodies. Blockchain and cryptocurrency technology serves as a promising solution to people living in developing countries due to their decentralized nature and higher levels of accessibility.
With this in mind, and taking into consideration that people living in developed countries may not face these problems at the same magnitude, it’s fair to say that cryptocurrency and blockchain technology will play a bigger role in developing countries than in developed countries. Some countries may even consider cryptocurrency as a legal tender to provide citizens an alternative to the country’s weak fiat currency. `
Likelihood of Mass Adoption
The fact that approximately 70% of the global population resides in developing countries strengthens the mass adoption argument around the cryptocurrency space. It was previously mentioned what benefits blockchain and cryptocurrency technology offer citizens in developing countries. This, combined with higher living costs, inflation, and levels of corruption, will just push citizens of developing countries to adopt blockchain and cryptocurrency technology, thus leading to mass adoption of the technology.
An example of a developing country accepting cryptocurrency as legal tender is El Salvador accepting bitcoin as legal tender. Citizens of El Salvador can now make payments such as pay their taxes, pay for a coffee at a coffee shop, etc. using bitcoin. El Salvador is the fifth poorest country in Latin America with a per capita GDP of $4,131. Factors contributing to the country's poverty include gangs and violence and a weak education system. To combat the country’s severe levels of poverty, El Salvador’s tech-savvy president, Nayib Bukele, decided to experiment with accepting bitcoin as legal tender. If this decision benefits the El Salvador population, it could serve as a blueprint for governments of other developing countries to combat poverty and increase financial inclusion in their countries - creating a snowball effect that will eventually result in mass adoption. All eyes will be on El Salvador as the experiment takes place and they tackle some of the main issues of cryptocurrency and blockchain technology. Let’s take a look at what some of these issues are.
Downfalls of Cryptocurrency and Blockchain Technology
Although cryptocurrency and blockchain technology does offer citizens of developing countries a range of benefits, there are still some disadvantages to using cryptocurrency.
Cryptocurrency prices are extremely volatile. This can become a problem for anyone transacting with cryptocurrency as they may end up paying for something with bitcoin only to discover later that the amount of cryptocurrency they used for the purchase has increased in value - meaning they could have paid less of their bitcoin holdings for the same purchase if they had just waited a bit. On the other hand, the price may fall, resulting in users having to pay more of their bitcoin holdings for the same purchase.
When using cryptocurrency, users will have to make use of a cryptocurrency exchange platform. These platforms hold and secure cryptocurrency funds and wallet keys for users so that they can buy and sell cryptocurrency a lot easier. However, these exchange platforms are a target for cybercriminals because of the amount of cryptocurrency they hold. All cybercriminals have to do is gain access to the users’ wallet keys stored on the exchange platform and they can withdraw all of the cryptocurrency funds from the exchange platform to another account that can’t be traced or linked to a real-world identity.
Scams occur every day in the cryptocurrency space. These scams profit off of unsuspecting cryptocurrency users who are new to the space. Scams can grant cybercriminals access to a person’s cryptocurrency funds as they normally involve users clicking a link and entering their account username and password - everything needed by a cybercriminal to access a person’s cryptocurrency wallet and steal the funds inside.
These are just some of the main problems around cryptocurrency and blockchain technology. There is also the problem of citizens not willing to adopt cryptocurrency as a mainstream form of payment. This may be because these people lack education of the benefits of cryptocurrency. Also, although cryptocurrency does lower the barrier to entry for a new financial system, it does not remove it. Some people in developing countries may not have access to a smartphone or have a stable internet connection. This may require additional infrastructure to be strategically rolled out to give the necessary access to blockchain and cryptocurrency networks.
El Salvador Bitcoin Adoption: Conclusion
Cryptocurrency and blockchain technology proposes a new financial system that has a lowered barrier to entry for anyone across the globe, as well as a system that breaks away from centralized control - making it more accessible and fair. A large portion of citizens in developing countries do not have access to traditional financial services as their country has poor infrastructure. This results in the citizens being classed as “unbanked”. Cryptocurrency and blockchain technology can help these citizens become banked, giving them access to financial services that are cheaper than the alternatives that they had to resort to. Since the majority of the global population resides in developing countries, cryptocurrency and blockchain technology has the biggest chance of reaching mass adoption if adopted by citizens in developing countries. The first potential sign of things to come is El Salvador’s decision to accept bitcoin as legal tender. This is the first time a country will accept bitcoin as legal tender. All eyes will be on El Salvador as this decision is carried out in the coming months.