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Understanding El Salvador’s Bitcoin Law: Alternatives to Government Intervention

El Salvador made headlines last year when it became the first country to accept Bitcoin as legal tender. It is now time to start promoting mainstream adoption from the ground up.

El Salvador made headlines last year when it became the first country to accept Bitcoin as legal tender. The move has sparked debate both inside and outside the country, with supporters hailing it for its potential to bring financial services to large segments of El Salvador’s unbanked population while criticizing it for its top-down implementation. This has created uncertainty and led some Salvadorans to believe they have no choice, despite the fact that places like El Zonte have already accepted Bitcoin (BTC) as payment through organic developments that predate the law.

These arguments, while supporting and opposing the law, do not contradict one another. While the government made the decision, it is bringing financial services to new segments of the population. However, not all governments are interested in making Bitcoin legal tender, which raises a new question: How can we promote cryptocurrency adoption in emerging markets such as El Salvador without involving governments?

Latin America’s unbanked are being banked

The World Bank reported in August 2021 that nearly half of the Latin American and Caribbean (LAC) population was unbanked, meaning they did not have access to a bank account or other financial services. Among the most common reasons for remaining unbanked were the cost of maintaining an account, distance from financial institutions, a lack of necessary documentation, and a lack of trust.



Unbanking presents significant challenges, making it difficult for individuals to safely receive payments, save money, transfer funds outside of their communities, or access credit and credit scores. In short, not having a bank account can make it nearly impossible for people to conduct the daily financial transactions that many of us take for granted.

Cryptocurrencies are changing that by allowing individuals to access online financial services such as savings apps, lending platforms, and even micro-insurance solutions from their mobile devices with far fewer barriers and for far lower fees than traditional financial institutions charge. Bitcoin’s three characteristics — accessibility, affordability, and anonymity — make it an appealing option for banking the unbanked in countries like El Salvador.

Recognizing government intervention

However, it is critical to distinguish between impact and implementation. While widespread adoption of cryptocurrencies such as Bitcoin can have a profoundly positive impact on unbanked populations, providing a new alternative for accessing critical financial services will bring forth numerous ways to encourage that adoption.

El Salvador chose government intervention, making Bitcoin legal tender as part of a larger plan to lift the country out of poverty. Indeed, the government chose to invest its reserves in Bitcoin, accepting the risk of volatility in exchange for the potential earnings and keeping its promise to support infrastructure projects such as schools and public facilities across the country.

Rethinking mainstream adoption

Government intervention, however, is not the only option. As many governments in Latin America express a reluctance to accept Bitcoin as legal tender, we’re beginning to see alternative options for encouraging mainstream adoption from a grassroots level. Mobile access, education, financial barriers, institutional adoption, and Bitcoin alternatives are, in my opinion, the five most important factors to consider.

Increasing mobile accessibility

For cryptocurrency mass adoption to take hold, financial technology companies involved in the crypto space must provide users with mobile-friendly solutions. In Latin America and the Caribbean, less than half of the population has fixed broadband connectivity, and only 9.9 percent has high-quality fibre connectivity at home, despite the fact that 87 percent of the population lives within 4G signal range. When financial services are made available on mobile devices, the number of people who can access them increases by 37%. If fintechs can develop financial solutions for mobile phones, they will be able to make it easier for new users to engage with this novel technology.




Provision of educational services

While mobile-friendly crypto offerings are already becoming the norm in the crypto space, education is another important factor to consider. Individuals cannot be expected to trust or use cryptocurrency safely unless they have a thorough understanding of what it is and how it works. One of the most common reasons for being unbanked was a lack of trust.

Fintechs can break down that barrier and increase trust in cryptocurrencies by creating transparent educational programs that show users what cryptocurrencies are and how they can benefit from the technology. Rabbithole, for example, goes a step further by incentivizing learning through learn-to-earn programs that reward users for learning to participate in decentralized applications (DApps). When that education is successful, it can go beyond simply instilling trust and inspire communities to build on top of pre-existing technologies, adapting them to meet their needs and bringing in even more users.

overcoming financial obstacles

Of course, in order to begin transacting at all – whether through traditional or technical financial services – users must first have access to basic funds. By providing essential resources, universal basic income (UBI) initiatives can be especially effective in encouraging digital currency adoption (i.e. income). Through its decentralized poverty alleviation protocol, ImpactMarket is currently paving the way for UBI in the blockchain space, allowing for the creation and distribution of unconditional basic income between communities and their beneficiaries. When funds are transferred as digital assets via mobile-friendly education-oriented platforms, they encourage users to adopt the technology without imposing it on them.

Promoting institutional adoption

Institutional adoption is the final piece of the puzzle. UBI, education, and mobile access will only go so far in attracting new users, particularly among the unbanked, if they do not see opportunities to transact with digital currencies in everyday life. CARE and the Grameen Foundation, for example, are already incorporating blockchain technology into their operations by using cryptocurrencies to provide aid in Ecuador and the Philippines, respectively. When institutions use cryptocurrencies to make a positive difference, they instil new trust in the technology while also making funds available to vulnerable populations.

Extending beyond Bitcoin

Bitcoin’s popularity, as well as El Salvador’s decision to accept it as legal tender, should be interpreted as an endorsement of cryptocurrency in general. Bitcoin isn’t the only cryptocurrency capable of bringing financial services to the world’s unbanked. Other cryptocurrencies have lower gas fees and have less of an environmental impact. Stablecoins, on the other hand, serve as a safe alternative to Bitcoin’s price volatility.

It’s worth thinking about how a variety of cryptocurrencies and stablecoins with different benefits, such as fast transaction speeds, low gas fees, and price stability, could be combined to provide individuals with more accessible and affordable financial services.

Consider local El Salvador’s decision to make Bitcoin legal tender in recognition of cryptocurrencies’ potential to benefit large segments of the country’s population; however, we cannot expect all countries to follow in its footsteps.

Fintech firms entering Latin America and beyond must consider alternative grassroots strategies for encouraging crypto adoption — mobile accessibility, education, access to funding, institutional adoption, and Bitcoin alternatives will be critical to encouraging mass adoption of cryptocurrencies in emerging markets without involving governments.

To effect these changes, it is necessary to think locally rather than globally. How can we tailor programs to meet these five needs in smaller communities around the world, allowing individuals to gain access to digital currencies and financial technologies that meet their unique and diverse needs?


Disclaimer: These are the writer’s opinions and should not be considered investment advice. Readers should do their own research.


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