Two months ago, El Salvador’s President shook the crypto world by announcing his intention to make Bitcoin legal tender in his country. At the time, this was a massive announcement that the crypto community praised, while many others criticized it. However, according to the Bank of America’s recent report, there could be at least four major benefits to this revolutionary move.
The report was published last week, and in it, the bank’s analysts noted that recognizing BTC as legal tender, at least in El Salvador’s case, could help streamline remittances, provide consumers with greater choices, promote financial digitization, and even open up the country to American companies, as well as crypto miners.
These conclusions come after the bank found that remittances make up as much as 24% of the country’s gross domestic product. However, a significant portion of this money is used to pay transaction fees. Similar problems were seen in most other countries that have major remittances.
The report says that using BTC for remittances could significantly reduce transaction costs, compared to traditional channels. As such, Bitcoin would serve as an intermediary for international transactions. Essentially, senders would use their dollars to buy Bitcoin, send that Bitcoin to the receivers, who could then convert the coins back into dollars, all for only a couple of cents. Meanwhile, traditional money transfer channels are known for taking up to 5%, sometimes potentially even more.
Big milestone attracts big criticism
As mentioned, El Salvador became the first nation-state in the world that accepted Bitcoin as legal tender, which was a massive milestone in the entire crypto history. This historical moment marked a major step towards adoption, and it is quite possible that a number of other countries that are struggling financially could make similar moves in the near future. Indeed, several Latin American nations have hinted that they might pursue their own crypto strategies, although none of them have done it yet.
The decision was also followed by a lot of criticism, specifically by the International Monetary Fund, the UN’s Economic Commission for Latin America and the Caribbean, and others. However, there were also critics who were concerned about the issues that the move could cause to Bitcoin itself. One example is JPMorgan Chase, who believes that the move might place even more pressure on Bitcoin’s network.
As many are likely aware, Bitcoin has had scalability problems for a long time now, ever since it went big in 2017. Since it is only capable of processing only a handful of transactions per block, and each block takes roughly 10 minutes to be solved and transactions processed, there is a lengthy waiting period that can only be shortened by paying higher fees.
This pushed Bitcoin’s fees higher than ever before, which is a problem that other projects that use PoW consensus algorithm have experienced, as well. Most specifically, Ethereum, which has seen massive amounts of activity within its network ever since the DeFi sector blew up in 2020. With Bitcoin’s network being as overburdened as it is, JPMorgan is questioning whether it will become less effective as a medium of exchange after an entirely new community starts to use it.
El Salvador’s citizens remain skeptical
Lastly, there was also a survey that had the goal of discovering how the citizens of El Salvador itself feel about the move. Surprisingly, half of those who participated seem skeptical about using the coin as legal tender. Meanwhile, those who decide to adopt the coin for transactions can use a variety of different wallets for storing their coins, including the state-backed Chivo Bitcoin wallet.
With this move, the adoption of cryptocurrencies — which has already seen massive progress due to the 2020 and 2021 bull run — continues. Many countries’ central banks have responded to the growing popularity of crypto by developing CBDCs, many of which are nearing their launch and even country-wide usage. However, since these are not ‘real cryptos,’ it remains to be seen whether they will be less, more, or equally as effective.