Blog

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.