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About how in El Salvador they are trying to restore the economy with the help of cryptocurrency and why build a city at the foot of the volcano, said the host of the Trends YouTube channel Nikolai Dubinin
History of Cryptocurrency in El Salvador
El Salvador is a state in Central America with a population of 6 million people. The country does not have its own currency: since 2001, US dollars have been paid there. The authorities once did this to bring inflation under control, but at the same time, the government of the country deprived itself of the ability to manage monetary policy.
In September 2021, El Salvador recognized cryptocurrency as an official means of payment. But interest in cryptocurrencies appeared in El Salvador back in 2019, when an unknown American investor transferred $100 in bitcoins to non-governmental organizations in the country.
Then in El Salvador, as an experiment, they decided to launch a bitcoin economy and created the Bitcoin Beach project. In the village of El Zonte, located 50 km from the capital of the country, they began to use cryptocurrency to pay for goods. The village soon became a popular destination for entrepreneurs who believed in the digital money system.
Now a resident of any country can invest 3 bitcoins (about ₽12,7 million) in the economy of El Salvador and get a permanent residence permit.
Bitcoin City: how the cryptocurrency city will be arranged
El Salvador is not the most prosperous country. It is famous for its criminal gangs and a large number of illegal immigrants. Nayib Bukele, President of El Salvador, aims to fix the situation, and cryptocurrency is one of the tools to do this. According to Bukele’s calculations, if 1% of all funds in the world that are stored in bitcoins are invested in the economy of El Salvador, then its GDP will grow by 25%. Moreover, the President hopes that the country will turn into a haven for investors from the crypto community, and surf spots will attract travelers.
The authorities of El Salvador are confident that bitcoin can restore the country’s economy, so in the east of the country, in the department of La Unión, they plan to build a whole crypto city – Bitcoin City.
Residents of Bitcoin City will not pay taxes on income, property and capital gains. The only payment is a 10% value added tax. The collected money will go to the development of the city. Bitcoin City will be supplied with energy by geothermal stations built near the Conchagua volcano. Cryptocurrency will also be mined there. An exhibition complex will be built in the center of the city in the form of a symbol of cryptocurrency – bitcoin.
For the construction of the city, the authorities issued bonds worth $1 billion: half of this amount will be invested in cryptocurrency for a period of five years, the rest of the money will go to the development of infrastructure and mining stations. El Salvador has several partners:
- Blockstream is a company that develops financial solutions based on bitcoin.
- Bitfinex token creation platform.
Inconvenient currency: protests of the country’s inhabitants
The use of bitcoin is progress, however, the currency has many drawbacks so far. One of the most important and disadvantageous for the economy of El Salvador is the strong volatility of the cryptocurrency. After the country recognized the currency as official money, the price of bitcoin in one day first fell to $40, and then rose to $67. That is, the inhabitants of the country are forced to constantly guess how much their salaries will grow or how much they will depreciate.
The authorities suggest that the introduction of crypto should pull the country out of the crisis, if only because such payment transactions will avoid commissions. This will help Salvadorans working abroad save $400 million, which is now deposited in payment systems. But the problems of the payment system in the form of cryptocurrency are due to the fact that a third of the population of El Salvador does not have access to the Internet, and some residents do not even have a smartphone.
After bitcoin became the official currency, people took to the streets to protest. Most Salvadorans felt that the cryptocurrency is another state scam, with the help of which the oligarchs and officials will be able to take their money.
Environmental damage and fraud: criticism of El Salvador’s actions
El Salvador is actively negotiating with the International Monetary Fund. A year ago, the country was already given a loan, now they are discussing a new deal. Whether it will take place or not is still unknown, since the organization does not support El Salvador’s digital money policy. They believe that cryptocurrency is dangerous because it can be used to:
- money laundering;
- financing of terrorism;
- tax evasion.
The World Bank added that digital money also harms the environment. During mining, about 60 million tons of carbon dioxide are emitted into the atmosphere – this is about the same amount of pollution produced by 9 million cars.