El Salvador Purchases 400 Bitcoins on Tuesday, the day cryptocurrency became legal tender

Today, the Bitcoin Law takes effect, and international regulators and money launderers will be keenly monitoring its implementation.

El Salvador's government recently purchased at least 200 bitcoins ahead of Tuesday's official recognition of bitcoin as a legitimate form of currency. The purchase boosts the government's total cryptocurrency holdings to at least 400, or nearly $20.5 million in today's market.

President Nayib Bukele tweeted on Monday night, "El Salvador recently purchased 200 new coins." "We now own 400 #bitcoins in celebration of #bitcoinday."

Bukele, a 40-year-old conservative, championed a bill in June to recognise bitcoin as a national currency. The law, which takes effect today, means that individuals will be able to pay their taxes in bitcoin and, probably more importantly, will be able to dodge capital gains taxes on bitcoin held in the country.

The government has even subsidised bitcoin adoption in El Salvador with the creation of the country's official cryptocurrency wallet, Chivo. Citizens can sign up for the programme and receive $30 in free bitcoin, while privacy advocates have expressed reservations about the software. Bukele has reassured concerned Salvadorans that the government will continue to pay all wages and pensions in US money, which El Salvador adopted in 2001 following the collapse of its own currency.

El Salvador is the first government in the world to recognise bitcoin as a currency, and other countries will undoubtedly keenly monitor its success. The Bitcoin Law is being lauded by crypto aficionados as a new chapter in the history of money, ostensibly benefiting the approximately 70% of Salvadorans who lack access to traditional financial institutions. However, bitcoin has demonstrated little utility outside of its role as a speculative asset—a sophisticated Ponzi scheme that feeds money from the poor to the wealthy.

Bitcoin's price is highly variable, making it extremely difficult to utilise as a money. When El Salvador's Bitcoin Law was passed in early June, the price was $31,453. The price is $51,423.23 this morning. While this is excellent news for anyone who purchased bitcoin in June, it is equally probable that it will tumble back to that level at any time.

Bitcoin's technological constraints and inability to scale are currently one of the most significant roadblocks. At its maximum capacity, the bitcoin blockchain can process approximately seven transactions per second. Visa, on the other hand, claims to be capable of processing about 24,000 transactions per second. Bitcoin proponents love to tout the cryptocurrency as a cutting-edge new technology, but it is actually quite poor at the one thing for which it is lauded: serving as a medium of exchange.

Additionally, bitcoin's transaction fees are relatively costly, averaging around $3.30 at the moment. As recently as April, bitcoin transaction costs exceeded $60, rendering the money utterly unusable as a medium of exchange.

Since its announcement, the Bitcoin Law has already resulted in a lowering of El Salvador's credit rating by Moody's, and the IMF has expressed concern about a new loan agreement with the country. And officials worldwide are concerned that El Salvador's adoption of bitcoin would attract a flood of money launderers.

Will El Salvador be able to transition to a bitcoin-based economy, despite the enormous issues inherent in the cryptocurrency's technology? This is an open question. However, one thing is certain: If you're a money launderer, El Salvador will quickly become your new favourite country.

Support us!