El Salvador & Bitcoin: Unlocking Financial Inclusion Globally

Since its introduction in 2009, Bitcoin (BTC) has become the world’s most well-known cryptocurrency. Millions of people across the world use Bitcoin as an investment vehicle — but also to buy and sell goods. While many countries have accepted Bitcoin as a legitimate digital currency, others have banned its use completely. But one country that has made waves for its widespread Bitcoin adoption is El Salvador. In 2021, El Salvador made history by becoming the first country in the world to adopt Bitcoin as legal tender. This means that people can use Bitcoin to pay for any goods and services in the country.In this guide, we’ll explain why El Salvador’s adoption of Bitcoin is significant and explore its effects on financial inclusion.

What Is the Bitcoin Law In El Salvador?

This breakthrough law is the first of its kind, championed by President Bukele. While the law itself is comprehensive, here are the important highlights:

• Both Bitcoin and the U.S. dollar are classified as legal tender in El Salvador.
• All businesses in El Salvador must accept Bitcoin as payment for goods and services.
• Bitcoin is exempt from capital gains tax.

As part of the law’s launch, El Salvador gifted its citizens $30 in free Bitcoin along with each download of the nation’s patented Chivo wallet. As a result, more than half of El Salvador’s citizens have downloaded the Chivo wallet. El Salvador’s approach to this law created a worldwide precedent for Bitcoin adoption. Some have praised the country, believing they are adopting a modern alternative to outdated fiat currency. Others, like the World Bank and the International Monetary Fund (IMF) believe the strategy is risky and too difficult to legislate. In fact, many countries and regulators have gone in the opposite direction, spearheading legislation to strictly regulate cryptocurrencies because they believe them to be unstable and possibly dangerous, while others are indifferent toward Bitcoin and don’t regard it as a legitimate currency. As we continue to see growth in El Salvador with Bitcoin, we will see other countries following suit in the future.

Reasons Why El Salvador Adopted Bitcoin as Legal Tender

There are several reasons why El Salvador chose to adopt Bitcoin as legal tender, including:

Financial Inclusion

Around 70% of El Salvador's population does not have a bank account, and Bitcoin will make it easier for people to access financial services and send and receive money. Since Bitcoin is a decentralized cryptocurrency, anyone can buy and sell it — and, in turn, use it to buy products and services.

Remittances

El Salvador receives billions of dollars in remittances each year from Salvadorans living abroad, and traditional banks charge high international transfer fees to send these remittances. Whereas Bitcoin allows for low-cost peer-to-peer (P2P) transactions, making sending and receiving remittances cheaper and faster.

Economic Growth

The more people can participate in the marketplace, the more they can stimulate the economy. With Bitcoin as legal tender, this Central American country can increase the size of its domestic marketplace, stimulate its economy, and create a better country for its citizens.

Financial Inclusion: What It Means and Why It Matters

Financial inclusion is a country’s ability to produce affordable and accessible means for its citizens to use financial products. First-world countries are home to thriving financial centers and offer a wealth of different options for people to buy and sell products without using traditional banks. However, developing countries like El Salvador typically face challenges in maximizing financial inclusion due to changing monetary policy, inflation, and fluctuating economies. By requiring businesses to accept Bitcoin, El Salvador positions itself to make finance convenient for most of its citizens. In doing so, the El Salvadoran government hopes to improve its economy over the long term.

How AlphaPoint Assists With Financial Inclusion

AlphaPoint has built a strong reputation for helping businesses in the digital asset industry utilize high-performance solutions and products to serve their customers. We believe in financial inclusion and provide digital asset infrastructure to help businesses leverage the power of crypto. When the El Salvadoran government reached out to AlphaPoint, we formulated a strategy to help them deploy widespread Bitcoin adoption in their country.

We Helped Develop the Chivo Wallet

AlphaPoint is an industry leader in delivering digital asset infrastructure. Our team helped El Salvador create their proprietary Chivo Wallet. Specifically, we led the frontend and backend infrastructure that powers the Chivo Wallet. We provided and integrated the entire ecosystem of the digital wallet, including the mobile application, merchant website portal, call center support software, and administrative console. Our build focused on security and scalability to give people a high-quality user experience over a blockchain network.

Our Partnership Was a Major Success

The partnership was a success, as El Salvador reported a high buy-in with the Chivo Wallet and in-app participation among their target demographics. In just a single year after launching Chivo and adopting Bitcoin as legal tender, there was a 10.3% GDP increase (the highest private sector investment increase since 1960) and a 30% increase in tourism.The Chivo Wallet answered a pressing marketplace need. Now, more citizens can use Bitcoin to buy, sell, and access financial services throughout the country.

We Delivered Industry-Leading Technological Solutions

AlphaPoint’s role in the partnership received high praise from the Press Secretary of the Presidency of the Republic of El Salvador, stating, “AlphaPoint has all the world experience to offer technological solutions, financial services, and access to Bitcoin for millions.”

Infrastructure and Education for Building a Bitcoin-Friendly Ecosystem

Building a Bitcoin-friendly ecosystem like El Salvador takes a considerable amount of planning and investment. Other countries interested in taking this route should be mindful of these considerations:

• What would this implementation look like for their country? El Salvador’s economy is stimulated mostly by tourism and international remittances. First-world countries interested in this approach need to be clear about how to customize a Bitcoin-friendly financial system for their unique economic framework.
• What would this infrastructure look like? Do you want to build a national Bitcoin wallet? Are you going to require businesses to accept Bitcoin? If so, how will you enforce this legislation?
• Will there be any significant regulations? Fiat currency is already bound by several regulations that protect consumers, dictate tax laws, and guide banks and merchants for payment processing. Implementing a Bitcoin-friendly system will require government regulations to achieve these outcomes. However, you’ll need to determine a fine line between necessary and restrictive crypto regulations.

Global Implications and the Future of Bitcoin In National Economies

El Salvador’s Bitcoin law can inspire other countries to follow suit. Germany, Switzerland, Singapore, and Japan are all Bitcoin-friendly countries. This law also calls into question an age-old principle: Do countries have unlimited control over their monetary systems?By design, Bitcoin is an egalitarian system. It gives people full control over their money. Also, the market dictates the value of Bitcoin. In fact, other cryptocurrencies enact burning protocols to eliminate inflation. There are significant global implications to countries outright adopting Bitcoin as legal tender, meaning there will be more questions about how governments control and handle money.Since people now have an alternative to choose crypto over fiat currencies, it’s no longer a question to ignore. Also, countries that accept cryptocurrencies could encounter tension from countries that don’t if they do business together. As a result, there will need to be a middle ground on a global scale to ensure that crypto doesn’t disrupt the harmony of worldwide financial markets. Other countries like the United Kingdom, Paraguay, Ukraine, Venezuela, and Russia have begun experimenting with their own crypto projects, hoping to implement widespread use of cryptocurrencies in their respective countries.

Bitcoin and Global Inclusion With Alphapoint

El Salvador’s adoption of Bitcoin as legal tender is a world-changing development that may ultimately change the way other countries approach cryptocurrencies. If the Chivo Wallet continues its success, it may not be long before other countries build similar technology. If that’s the case, more businesses will need to expand and accept cryptocurrencies to keep pace. The problem is that not every business has the expertise, tools, and personnel to make these changes. If you want your business to keep pace with the growing popularity of crypto, AlphaPoint can help. We provide digital asset infrastructure solutions including white-label products to help you easily expand your business offerings into crypto without needing to keep an expensive crypto expert on deck. Get a demo today to see how our experienced team can help your business stay ahead of the curve.