Could Bitcoin help to end poverty in In El Salvador?

By | February 10, 2022

Bitcoin city with volcanic energy

In any case, foreign investors who want to invest Bitcoins in startups and real estate are queuing up at the authorities, according to Serrano. In the long term, thanks to Bitcoin, El Salvador will become a technology pioneer in Central America; instead of exporting migrants to the US, El Salvador will lure workers from all over the world here. So Bukele Ortez, the President of El Salvador, announced the creation of a special economic zone at the foot of the Colchagua volcano on Saturday. Foreign investors are to settle in “Bitcoin City”, almost tax-free. Moreover, Bukele has announced several times that bitcoins are also to be mined in El Salvador.

He sees the solution to the energy-guzzling mining in geothermal power plants on the volcanoes. El Salvador gets around a quarter of its energy from geothermal power plants. However, experts point out that the energy obtained by these sources is too expensive and makes Bitcoin mining unprofitable. At the beginning of October, Bukele solemnly tweeted that 0.00483976 bitcoins had been mined in September, corresponding to just 200 francs. But that doesn’t detract from the gold rush mood. Youtuber Daniel Santamaria is also enthusiastic. His videos explaining Bitcoin are being clicked more often, and YouTube rewards that well. “The topic of Bitcoin is just in,” says Santamaria. He is also a fan of Bukele – and Starbucks.

Despite the law, acceptance is still low.

You can pay for the American coffee company with Chivo and other Bitcoin wallets. That is rare. Article 7 of the Bitcoin Act requires all businesses to accept Bitcoins. But many shops insist on hard dollars, and others only accept Bitcoins via Chivo. Even in San Salvador, the capital,  hotels, taxis, and many restaurants refuse to accept bitcoins. Inland, acceptance is even lower. As provided for in the Bitcoin Act, the payment of taxes, pensions, and wages in Bitcoin is also a future dream.

Despite the anti-USA sentiment, young people populate Starbucks stores with their smartphones. The internet is best here. In Addition, most of the citizens of El Salvador are now started trading by apps like allin1bitcoins.com, which are very handy and user friendly. 

Unfortunately, poor cell phone internet is a national hurdle to Bukele’s digital revolution. In the poor hinterland, smartphones and fast internet are rare. Even in the capital, ordering an Uber on your cell phone can be a nightmare.

infrastructure vulnerability

There is also a problem with digital payments. Sometimes the transaction breaks off. Often, the payment instructions read in via QR codes differ significantly. Even at Starbucks: The Caffè Latte and Smoked Turkey Sandwich cost $8.75. However, the corresponding QR code generated by the checkout always shows amounts well over $9 when scanned into the cell phone wallet. The mobile phone cannot update the courses, one is told. Eventually, you give up and pay with real dollars. Is El Salvador just not ready for bitcoin yet?

Bukele announced the launch via video at a Bitcoin event in Miami in June. Why the rush? “That’s the $1 million question,” says economist Ricardo Castaneda of the Instituto Centroamericano de Estudios Fiscales (Icefi). “Less than 72 hours elapsed between Bukele’s video in Miami and the passage of the Bitcoin Act. Adoption in Parliament took only a few hours, with no technical studies or debates.»

The transferred dollars are missing.

Castaneda speculates that Bukele may have feared American sanctions because of his authoritarian policies and wanted to create alternative channels for transfers from the United States. In any case, the introduction was good business for some companies close to the president, starting with the non-transparent development and administration of the Chivo wallet. In addition, $150 million is said to be secured in a trust which can compensate for the high volatility of Bitcoin.

The project doesn’t make sense, says Castaneda. If a large part of the remittances from the US were to be made in Bitcoin, El Salvador’s economy would automatically collapse. Moreover, there are neither enough dollars to pay off the bitcoins nor are they enough to pay for imports and foreign debt service. “There are many risks in Bitcoin law, and the more Bitcoin is used, the greater and more specific those risks become.”

At the same time, the country is becoming a paradise for money laundering, a virtual tax haven. Because according to the Bitcoin Act, profits from Bitcoin transactions are tax-free. Castaneda also considers the differences in transactions and payouts observed by users to be suspicious. “It could be a hidden commission that is obscured by these deviations.” Bitcoin stands for transparency, and everyone can see the transactions. “But the government hides all this information.”

Category: Technology

About Francesco Corea

Francesco Corea is the senior writer at VOIVO InfoTech. He loves to purchase the latest smartphone in the market and share its review with the users. Also, he notifies regularly about the latest technology advancements in the market. He is basically a Tech Investor and AI technologies. To get in touch with Francesco for news reports you can email him on francesco@voivoinfotech.com or reach him out on social media links given below.