Earlier this year, El Salvador burst onto the Bitcoin scene after announcing that they would become the first country to accept Bitcoin as legal tender. As adoption becomes more widespread with help from large corporations, including the likes of Visa and MasterCard, traction continues to grow for the world’s leading digital currency. With this growth comes uncertainty for other companies that operate in overlapping spaces, such as international money transfer.
BTC Rolls Out in El Salvador along with a National Digital Wallet
Bitcoin became an official currency of El Salvador just weeks ago on September 7th, 2021, and with it came a national digital wallet rolled out by the country’s government. The wallet, called Chivo, offers all citizens who sign up an initial bonus of $30 in complimentary Bitcoin. It allows users to make quick, worldwide payments as well as transactions within the country without additional fees.
The quick transaction speed, paired with a $0 fee, is likely to have a very positive impact on Salvadorans around the world, with those abroad often sending money back home through remittance providers like Western Union and Moneygram. As the use of Bitcoin and the Chivo wallet increase throughout the country, there will be a reduced need for these payment services that often charge a hefty commission on top of transactions.
More recently, El Salvador received an even brighter spotlight as the President has instructed a state-owned, geothermal electricity company to find a way to redesign Bitcoin mining facility energy usage to use clean, renewable energy from volcanoes in the region. Because large amounts of energy are lost to oversupply and transportation, mining facilities built in close proximity to these geothermal plants can use the excess clean electricity at a cheap rate.
Fun Fact: If you ask Siri what the currency in El Salvador is, she’ll confirm for you that it is the U.S. dollar and Bitcoin. Cool, isn’t it?
Western Union & Other Remittance Providers Face Irrelevance
The legal tender development in El Salvador has the potential to push out huge companies like Western Union and Moneygram, which make most of their revenue in the country by charging hefty fees for money transfers. The country received nearly $6 billion in remittances in 2020, accounting for nearly a quarter of its GDP. With roughly 70% of the Salvadoran population receiving remittances, a more cost-effective option like Bitcoin could see these transfer service companies become unprofitable and forced to adjust, or risk being pushed out of the country entirely.
Not only can Salvadoran citizens transfer money using Bitcoin with no extra fees, but the process is also much faster than the traditional money transfer method. Transfers through Western Union can take 3-5 days to process, and citizens in El Salvador often have to travel to the nearest store to receive their money. Even when they do go to visit the store to receive a transfer, one ex-resident of the country offered insight into how gang groups tend to hang around the offices, waiting for people to exit with their money and become subject to robbery and theft.
Bitcoin and the Chivo wallet provide citizens with a method of transfer that can be received anywhere, and either spent at retailers that accept Bitcoin, or exchanged for U.S. dollars at a Chivo ATM - all without a fee. If Salvadorans take full advantage of this opportunity, these remittance companies will soon die out in the country unless changes are made. Corroborating this is the fact that Bitcoin is already trending much higher on Google in El Salvador than Western Union and Moneygram, the current top two payment processing companies in the country.
Bitcoin Price Could Exponentially Rise if Other Countries Follow Suit
It is already largely anticipated that other countries could soon follow in El Salvador’s footsteps and use Bitcoin as legal tender, as it is especially attractive in countries where inflation is a large issue and their currency is quickly losing its value. Excessive money printing and inflation are issues that could potentially be solved by the adoption of Bitcoin, as it is not reliant upon any one fiat currency and the “printing” of more BTC is impossible due to a hardcoded limit of 21 million BTC in its source code. Further, adoption of Bitcoin is an alternative to a growing reliance on the U.S. dollar and is a great way to attract tech entrepreneurship within one’s own region. Paraguay, México, Argentina, and Venezuela are among the countries that are expected to follow suit by adopting Bitcoin as legal tender, as seen by public predictions demonstrated through online voting portals.
If Bitcoin does continue to be adopted by countries as legal tender, there will be a compounding detrimental impact on the traditional payment providers that already have a questionable future in El Salvador. Further, Bitcoin’s importance will rise with each adoption, which will naturally have a naturally bullish impact on its price and valuation. Getting exposure to Bitcoin before this climb happens is a great way to prepare for the promising future of the crypto market.
Efficient miners are currently accumulating Bitcoin at vast discounts to current market prices. For example, anyone mining with an Antminer S19 Pro at any electricity rate lower than $0.39 per kWh is currently turning a profit. With electricity prices starting at just $0.05/kWh, Wattum offers affordable hosting and management in several facilities across the world, including Russia and Kazakhstan.