El Salvador, which translates to “The Savior,” made headlines last week by becoming the first country to adopt Bitcoin as legal tender.
Heavily reliant on remittances, or money transferred to a country from abroad, El Salvador benefits from having a quick and cheap way to send money across borders. For dollar transfers, most American banks will charge a flat rate of $50 for international exchanges. Additionally, a margin on the daily exchange rate is also applied; the standard rate is around 5 percent. Bitcoin transfers would save a sender over $500 for every $10,000.
The May announcement created a four-fold jump in small transfers of Bitcoin to El Salvador.
Opposition to Bitcoin and cryptocurrency
In an effort to revitalize its economy, El Salvador is in talks with the International Monetary Fund (IMF) about securing $1.3 billion in financing. However, the organization has displayed public unease over the country’s adoption of Bitcoin as legal tender, possibly jeopardizing the financing deal.
“Adoption of bitcoin as legal tender raises a number of macroeconomic, financial and legal issues that require very careful analysis,” said Gerry Rice, an IMF spokesman, during a recent press briefing.
“We are following developments closely, and we’ll continue our consultations with the authorities,” the spokesman gently threatened.
According to researchers at the University of Cambridge, close to 65% of all Bitcoin mining occurs in China – where the vast majority of electricity is created through coal burning. With CNBC reporting that about 35.95 million tons of carbon dioxide are produced yearly as a result of bitcoin mining alone (the same as New Zealand), public pressure has mounted to find alternatives.
To confront this issue, Nayib Bukele, the president of El Salvador, intends for his country to Bitcoin mine using power derived from volcanic activity.
“I’ve just instructed the president of @LaGeoSV (our state-owned geothermal electric company), to put up a plan to offer facilities for #Bitcoin mining with very cheap, 100% clean, 100% renewable, 0 emissions energy from our volcanos,” President Nayib Bukele tweeted. “This is going to evolve fast!”
In design, the volcano will heat underground water, creating a rush of turbine spinning steam that kinetically creates electricity.
Implications for El Salvador
In a country where 4 of 10 citizens live below the poverty level, Bukele’s experiment has the potential to change the course of history for those involved. The freedom to work abroad and transfer currency across state lines without penalty is only the tip of the iceberg for the implications crypto will have on international labor. What is on the other side could very well be unrecognizable.