El Salvador’s Bitcoin Bid Hitting RoadBlocks

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El Salvador’s plans to make world cryptocurrency history have encountered a major stumbling block. Earlier this month, the Central American nation announced its intention to make Bitcoin legal tender in their country. El Salvador was the first country to initiate this bold move. The objective in El Salvador is to make Bitcoin a parallel currency alongside the US dollar.

More and more businesses are willingly accepting Bitcoin and other forms of cryptocurrency as payment for goods and services. For example, in the world of online sports betting, several prominent sites such as Bovada are actually encouraging customers to make use of Bitcoin and various other cryptocurrencies to top up their accounts.

However, that evidently carries no weight whatsoever with the World Bank. Earlier this week, Alejandro Zelaya, El Salvador’s Finance Minister confirmed that the country had made a pitch to the World Bank for technical help with their plan to implement Bitcoin as an official form of payment within the country. That request was in the form of a request for a $1.3 billion loan.

“El Salvador,bitcoin training” by Michele Peterson is licensed under CC BY 3.0

World Bank Declines

This ask of the overseers of the International Monetary Fund was not answered in the affirmative, though. The World Bank is declining to get involved in El Salvador’s Bitcoin adventure.

Also, read 6 Reasons you should be skeptic about bitcoins.

“We are committed to helping El Salvador in numerous ways, including for currency transparency and regulatory processes,” a World Bank spokesperson told Reuters news agency.

“While the government did approach us for assistance on Bitcoin, this is not something the World Bank can support, given the environmental and transparency shortcomings.”

Burning Up Energy

The environmental concerns center around how much energy is burned up during the Bitcoin mining process. Huge computing power is required in order for the blockchain technology that mines the cryptocurrency to operate.

According to the University of Cambridge Centre for Alternative Finance (CCAF), which studies cryptocurrency, it is their opinion that Bitcoin’s total energy consumption is somewhere between 40 and 445 annual terawatt hours. By comparison, the energy consumption of the entire United Kingdom is just over 300 terawatt-hours per year.

Estimates are that more than 16 quintillion calculations take place every second within the blockchain. “Right now we’re using a whole lot of energy to produce those calculations, but also the majority of that is sourced from fossil energy,” Alex de Vries, founder of the Digiconomist website and an expert on Bitcoin, told the BBC. 

This concern is a key factor in the World Bank’s reluctance to back Bitcoin as a legal tender in a sovereign nation. “If Bitcoin were to be adopted as a global reserve currency,” de Vries said, “we’d have to double our global energy production.”

Zelaya indicated that the impression he got was that their discussions with the IMF regarding the adoption of Bitcoin as legal tender in El Salvador had gone well. An IMF spokesperson countered by suggesting that there were “macroeconomic, financial and legal issues” involved with the country’s plan to implement Bitcoin.

“El Salvador, bitcoin shop” by Salvador Melendez/AP is licensed under CC BY 3.0

El Salvador’s Idea

Last week, the El Salvadoran Congress approved President Nayib Bukele’s proposal to embrace Bitcoin as legal tender. Under the legislation, Bitcoin will become legal tender, alongside the US dollar, within 90 days of the Congressional approval.

The new law means every business must accept Bitcoin as legal tender for goods or services. Unless it is incapable of providing the necessary technology required to process such transactions.

President Bukele indicated that the history-making move by his government would make it easier for Salvadoreans living abroad to send money home.

El Salvador’s economy is heavily reliant on remittances – money sent home from other nations. Approximately 20 percent of the country’s gross domestic product (GDP) consists of his type of transaction. 

There are in excess of two million Salvadoreans living outside the country. However, the majority of Salvadoran ex-pats maintain close ties with their place of birth. Estimates are that these Salvadorean nationals abroad return in excess of $4 billion each year to the country.

Looking to bring the Bitcoin elite to his country. The social media-savvy Bukele has taken to the Twitterverse to make bold promises to those, who choose El Salvador as their new home. 

These enticements include beachfront properties for sale, no real-estate tax, no capital gains tax on Bitcoin, and permanent residency to anyone currently in ownership of three Bitcoins to invest. That works out to about $120,000 at current prices.

According to Bloomberg News, there are some 360,000 addresses in possession of at least $100,000 in Bitcoin.