bitcoin in el salvador as a legal tender,
how it will work?
For several weeks and several months ago, El Salvador was the headline in many media for the proposal to implement the cryptocurrency bitcoin as a legal tender. Finally we have compiled enough information in this regard, both technical information, from the media, as well as practical information to be able to develop a complete first report, and above all touching fundamental issues that very few media have exposed, and above giving a position that is also particular , but as part of a sector of the economy, which by the way, is one that is directly related to the subject, the tourism sector.
In general terms and to establish a context, from September 7, 2021 finally according to the bitcoin law presented by President Nayib Bukele and approved by the Legislative Assembly three months before. It establishes the cryptocurrency bitcoin as a legal tender together with the dollar of the United States of North America.
In said bitcoin law, which is quite short and simple, it basically establishes that the cryptocurrency can be used to carry out any public or private transaction, that the profits resulting from the fluctuation of the price of the cryptocurrency will not be subject to any tax or tax charge. , and that the State will have the obligation to facilitate the technology necessary for the implementation, in addition One of the most controversial articles is the one that establishes as mandatory for any natural or legal person to accept transactions in cryptocurrencies if the other party requests it, returning it from this form of mandatory character.
But starting from this context we begin our analysis in this regard, in advance to clarify that the subject is extremely extensive, with different ramifications, political, economic, social, technological aspects that involve this subject, we will try to cover all possible aspects in a practical way to have an overview.
Regarding politics, it is necessary to speak of the Bukele administration, one of the most controversial at national and international level, and it is even possible to speak of a unique Latin American political phenomenon. With an evident totalitarian cut, monopolizing all the powers of the state and institutions, the millennial president is still a mystery that seeks to leave in any way, the illegalities in his management and his way of governing are evident but at the same time difficult to be judged by an opposition or external governments with similar practices but that pretend otherwise. The traditional media misinforming in their favor and the government in the same way with their presence on social networks and their media network misinforming on their own together with their followers who are like a coercive sect totally fanatized of the messianic image or figure. of President Bukele. The protests of September 15 were a sign that not everything is rosy for the president who boasts an acceptance of up to 80% of the population, but that apparently his popularity is gradually decreasing in some sectors thanks to totalitarian political measures but also getting stronger in some other sectors. This Bitcoin Law is the perfect example, all the surveys show that the majority of the population is not in favor of the bitcoin law, but above all because of the lack of information and knowledge, since neither the government or the opposition is transparent on the subject. , so that the population and the international community, which are mostly not familiar with blockchain and bitcoin technology, do not have enough information to be able to have a real technical criterion about the measure,
In any case, the political component is practically the aspect that could affect the implementation of this project having many deficiencies, and not achieving the scope of the benefits that are intended to be obtained due to poor procedures, forms and measures to be taken by the politicians to make it happen. The lack of information was the first criticism of many that we will develop throughout this editorial.
And the classic questions are the same.
How will it be possible to deal with the volatility of the cryptocurrency?
Here we will try to answer in the simplest way. Natural or legal persons are obliged to accept payments in bitcoins but they are not obliged to keep the cryptocurrencies, that is, any agent will have the power to keep their funds in dollars transforming them from bitcoins to dollars immediately within the electronic wallets and even using the more than 200 bitcoin ATMs that the government has installed at its disposal.
But then comes the same question, how will it be implemented?
And it is where the “Chivo Wallet” application appears, which is the one that was designed by the government as part of the implementation infrastructure of the Bitcoin Law. And this electronic wallet offers the user the service of changing bitcoins to dollars instantly and at no cost.
The electronic wallet is for custodial funds, and the government offered an initial bonus of US $ 30 for all national users, and its operation is based on the Lightning Network, a very important concept to know to understand in more detail everything that the law bitcion and its implementation is intended to be.
What is the Lightining Network?
It is an alternative network that facilitates the exchange of cryptocurrencies, making it faster and at a very low cost, an alternative network connected to the Blockchain but that allows speeding up the transfer of funds either in bitcoin or in stable cryptocurrency. And according to our analysis, it is the fundamental part of why the international powers are very against the implementation of cryptocurrency, since the lightning network could return to a financial alternative that competes directly with the traditional financial technology of fiat currencies. of central banks.
Is it then an obligation to use the Chivo Wallet and the Lighning Network?
And like all the answers to most questions on this topic, there is no black or white, a yes or a no without having a "but" afterwards. In general, the answer is, it is NOT an obligation to use the government wallet and it is not an obligation to use the Lightning Network, BUT, in practice the whole project is being pushed to the use of the wallet, which uses the LN, for What is possible in this scenario that the government achieves the objective that everyone ends up using their wallet, or that a war of applications to use is avenged, but that would lead to complications, since the transactions are fast, easy and at a lower cost if the same application is used between the parties.
And as for the LN, it is not an obligation to use it, but in practice it is much more convenient since the traditional exchange of bits is not suitable for micro economies, the transfer costs are very high for small amounts, and much slower.
In short, to use a non-centralized and traditional wallet will always have a degree of difficulty, and quite possibly impossible to do so, and users will have the need to download another application to enter an ecosystem compatible with the majority.
And it is where again it can be interpreted that more than the implementation of Bitcon as legal tender, what is being tried to implement in practice is a technological alternative of financial transfers based on the Bitcoin blockchain. And in practice it is becoming more evident, the transactions with the Chivo wallet are mostly carried out in dollars and not bitcoins, but that is something normal to such a complex process of which the vast majority are still learning and knowing.
One of the fundamental details to criticize is the lack of efficient communication between the Chivo Wallet with other wallets even that work within the LN, this being the main problem for many foreigners who in these first months have tried to use their bitcoins, but they are details that are expected to be solved or that the same application competition will lead to an opening.
At the moment there is much more to talk about and that we will be developing in future publishers.
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