On Wednesday 9 June 2021, El Salvador made history by becoming the first country in the world to adopt Bitcoin as legal tender. The motion to adopt the cryptocurrency was the brainchild of El Salvador’s President Nayib Bukele, and was approved by congress this week. Shortly after the favourable vote by congress, President Bukele took Read more
On Wednesday 9 June 2021, El Salvador made history by becoming the first country in the world to adopt Bitcoin as legal tender. The motion to adopt the cryptocurrency was the brainchild of El Salvador’s President Nayib Bukele, and was approved by congress this week.
Shortly after the favourable vote by congress, President Bukele took to Twitter to address environmental concerns associated with the economic endeavor. Bukele announced plans for the country’s state-run geothermal energy utility to begin using power derived from volcanoes for Bitcoin mining:
I’ve just instructed the president of @LaGeoSV (our state-owned geothermal electric company), to put up a plan to offer facilities for #Bitcoin mining with very cheap, 100% clean, 100% renewable, 0 emissions energy from our volcanos 🌋— Nayib Bukele 🇸🇻 (@nayibbukele) June 9, 2021
This is going to evolve fast! 🇸🇻 pic.twitter.com/1316DV4YwT
Later on Wednesday, Bukele Tweeted a video showing a plume of ‘pure water vapor’ projected into the air from a pipeline. Alongside the image, Bukele writes: “Our engineers just informed me that they dug a new well that will provide approximately 95MW of 100% clean, 0 emissions geothermal energy from our volcanoes,”.
Bukele’s Tweets come in the wake of a surge in international concern about the high environmental cost of Bitcoin mining. Most notably, the centibillionaire Elon Musk (founder of SpaceX, Tesla, and Paypal) recently aired his disapproval of Bitcoin’s environmental impact. In May, Musk tweeted that Tesla would no longer be accepting Bitcoin, emphasising the cryptocurrency’s rapidly increasing use of fossil fuels for mining and transactions, stating that they will resume accepting BTC once 50% of the mining energy is “green”.
Since it is a digital currency, Bitcoin is not ‘mined’ in the traditional sense. Instead, the cryptocurrency is recorded and minted by incredibly fast and powerful computers. Naturally, massive amounts of electricity are needed to run the machines, solve complex math problems, and cool the computers when they overheat in the massive competition that is Bitcoin Mining. With Bitcoin miners located all over the world, the overall energy consumption is immense. According to the Cambridge Bitcoin Electricity Consumption Index, worldwide Bitcoin mining uses about 105 terawatt hours of electricity per year, which is higher than that of a small country.
El Salvador’s historic embrace of Bitcoin has been highly anticipated by cryptocurrency supporters. Thus far, it seems that President Bukele’s announcement of El Salvador’s plan to employ volcanic energy has been well received.
Bitcoin has the potential to be an economic game changer for the Central American country. In a Tweet made shortly before the vote in congress, Bukele said: “It will bring financial inclusion, investment, tourism, innovation and economic development for our country”. The nature of Bitcoin (which is based on blockchain and cryptographic technology) makes it incredibly promising for El Salvador. In short, this technology enables a peer to peer payment system that does not need to rely on third parties, like financial institutions.
Currently, over 70% of the Salvadoran population are without bank accounts, rendering them excluded from the financial sector. Furthermore, over two million Salvadorans live and work outside of the country. As a consequence, remittances make up over 20% of the country’s GDP. With Bitcoin as legal tender, remittances can be transferred without the costly banking fees, and the informal economy will become better integrated. On top of this, President Bukele expects significant job creation and boosted investment in the country.
Considering El Salvador’s present economic situation, the move to formalise Bitcoin appears to be a suitable one. The country’s acceptance of Bitcoin as legal tender may also prove to bolster Bitcoin’s reputation as the ‘currency of the future’. In light of concerns related to environmental impact and public perception, Bukele’s plans to secure a renewable source of energy for the project are wise. There are sure to be more developments in the story soon, so keep an eye on El Salvador.