When El Salvador voted this week to make bitcoin legal tender, it marked the start of an experiment sure to draw close attention amid a global surge in interest in cryptocurrency.
Nayib Bukele, the Latin American nation’s meme-loving millennial leader, claims that embracing the cryptocurrency “will generate jobs and help provide financial inclusion to thousands outside the formal economy.” Remittances from citizens living abroad make up about a fifth of El Salvador’s gross domestic product, according to World Bank figures, and Bukele believes that bitcoin has the potential to transform the way that money is sent across borders.
But critics suspect that the move is a publicity stunt intended to distract from what they see as Bukele’s authoritarian tendencies, including his party’s ouster of El Salvador’s attorney general and several top judges.
The new law has also raised numerous questions about how goods and services will be priced, and the environmental ramifications of bitcoin mining. Here’s what we know so far.
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What will it mean for bitcoin to become legal tender?
Bitcoin, the most popular cryptocurrency, is a decentralized digital currency that has gained traction as an alternative to money issued by governments. Its value has been highly volatile.
Merchants in El Salvador were already free to accept bitcoin as a form of payment. Once the new law goes into effect several months from now, however, they’ll be required to do so unless they lack access to the necessary technology. People will also be permitted to pay their taxes in bitcoin.
The U.S. dollar will remain El Salvador’s main currency, Miguel Kattán, El Salvador’s secretary of commerce and investment said Monday, according to El Mundo, a Salvadoran newspaper. Goods are to be priced in U.S. dollars, rather than bitcoin, which tends to fluctuate wildly and involve long strings of decimals.
“Someone said yesterday, and I was laughing, how are you going to pay 0.00000001 of bitcoin for tomato? How is that transaction going to work?” Kattán said Monday. “What you are going to pay is the $0.20 that the tomato costs. Period.”
The government also intends to set up a $150 million trust at El Salvador’s development bank that will allow citizens to convert bitcoin into U.S. dollars. But it’s not yet clear how the exchange rate would be determined.
Will bitcoin replace traditional money transfer services?
Bukele thinks that it can, and has claimed that the amount of money that low-income families receive from remittances “will increase in the equivalent of billions of dollars every year” because middlemen will no longer be taking a cut.
But sending remittances to El Salvador is already relatively inexpensive, because the use of U.S. dollars means that payments don’t have to go through currency exchanges, Alex Holmes, the chief executive and chairman of MoneyGram, a money-transfer company, told The Washington Post.
MoneyGram has launched its own foray into bitcoin, which it plans to expand to international markets later this year, but Holmes said he doesn’t see cryptocurrency replacing traditional wire transfers anytime soon. For one thing, the number of people actually using bitcoin remains relatively small, and many see it as a speculative investment.
“I think it’s just a simple lack of utility,” Holmes said, noting that people who get paid in U.S. dollars would then have to go through another series of steps to convert that money into bitcoin, which typically requires paying exchange fees. Then there’s the fact that people are simply used to — and comfortable with — U.S. currency.
It’s also not clear if bitcoin will be widely adopted within El Salvador, where many people do not have access to the Internet. Bukele said in a recent tweet that the government plans to build satellite infrastructure that will allow rural Salvadorans to connect to the Internet, but that could be a long time coming.
Will El Salvador allow bitcoin mining?
“Mining,” the process that creates more bitcoin, requires running computers that eat up a massive amount of electricity. Global bitcoin mining consumes more electricity than the amount used over equivalent time by the entire nation of Argentina, according to one Cambridge University analysis — and the strain on the environment has prompted crackdowns in countries including China.
The law passed by El Salvador’s legislative assembly makes no mention of mining. But during a live conversation on Twitter Spaces on Tuesday night, Bukele announced an idea that had suddenly occurred to him: El Salvador’s volcanoes could be used as a renewable source of geothermal energy.
“Every day is going to be a new idea,” Bukele told the audience of over 25,000, according to Coindesk. The following day, he announced on Twitter that he had directed the country’s state-owned geothermal electricity company to develop a plan that would allow bitcoin miners to tap into “very cheap, 100% clean, 100% renewable, 0 emissions energy from our volcanoes.”
Hours later, Bukele said that engineers had already dug a new well that would become the center of a new bitcoin mining hub, and shared a video of the steam pouring out.
What are the potential advantages — and disadvantages — of adopting bitcoin as legal tender?
Supporters of the idea hope that the move will open up new opportunities for the roughly 70 percent of adults in El Salvador who do not have a bank account. Many also see it as a way for the country to attract foreign investment and become a hub for cryptocurrency entrepreneurs.
But because bitcoin is unregulated, the move has also raised concerns about the potential for money laundering, tax evasion and other shady dealings. Kattán said Monday that El Salvador’s government would introduce protections against money laundering, but it’s not yet clear what those would look like.
El Salvador is seeking $1 billion in funds from the International Monetary Fund, and some analysts have warned that Bukele’s sudden decision to embrace bitcoin could complicate those discussions.
An IMF spokesman said Thursday that the move “raises a number of macroeconomic, financial and legal issues that require very careful analysis” and that the organization would discuss its concerns with Bukele.
China Says It Has Achieved ‘Human Miracle’ Of Eradicating Extreme Poverty
Chinese President Xi Jinping on Thursday declared his country had achieved the “human miracle” of eliminating extreme poverty, though questions continue to surround the Communist Party’s criteria for making the claim.
In a glitzy ceremony in Beijing, Xi bestowed medals on officials from rural communities, some wearing traditional ethnic-minority attire, and promised to share this “Chinese example” with other developing nations.
“No other country can lift hundreds of millions of people out of poverty in such a short time,” Xi said.
“A human miracle has been created that will go down in history.”
China last year claimed it had achieved its long-trumpeted goal of lifting all of its people above a poverty line of $2.30 in daily income.
That is slightly above the World Bank’s lowest threshold of $1.90, but below what is recommended for higher income countries.
The World Bank says China has lifted more than 800 million people out of extreme poverty since turning to market reforms in the 1970s, after decades of state planning and ill-advised Maoist campaigns that had stifled the economy.
China is now “providing help to developing countries” still struggling with poverty, Xi said.
In 2015, Xi vowed to eradicate extreme poverty by 2020, a pillar of the Communist Party’s goal to build a “moderately prosperous society” by the 100th anniversary of its founding later this year.
Ahead of the deadline, the government poured billions of yuan into infrastructure like roads and modern apartment buildings, and offered tax incentives and subsidies to impoverished rural communities.
The standard of living in China has indeed changed dramatically since the 1970s, with hundreds of millions living consumer lifestyles that past generations could not have imagined.
But Beijing’s claims have met with scepticism.
Critics have pointed to the relatively low poverty line, claims of corruption cases linked to poverty funds, and perennial questions over whether official data is massaged to meet party political objectives.
Bitcoin’s Price Tumbles After US Regulator Says It Can Be Used For ‘Illicit’ Purposes
Bitcoin tumbled Tuesday from its record-breaking run after US Treasury Secretary Janet Yellen warned that the “highly speculative” unit could be used for “illicit” purposes.
At about 1500 GMT, the digital currency slid 12.57 percent to $47,946, while rival ethereum declined 15 percent to $1,539.
Tesla boss Elon Musk — whose company has invested heavily in bitcoin — tweeted Saturday that the prices of both cryptocurrencies “seem high”.
Yellen hit out Monday over bitcoin, claiming it was inefficient and required a vast amount of energy — and she expressed fear it was used for “illicit” reasons.
“I don’t think that bitcoin… is widely used as a transaction mechanism. To the extent it’s used, I fear it’s often for illicit finance,” she said at an event hosted by the New York Times.
“It’s an extremely inefficient way of conducting transactions. And the amount of energy that’s consumed in processing those transactions is staggering.
“But it is a highly speculative asset, and I think people should beware. It can be extremely volatile, and I do worry about potential losses that investors in it could suffer.”
Tuesday’s slump came after bitcoin had blazed a record-breaking trail to peak at $58,350 on Sunday.
The total value of all bitcoin had surpassed $1.0 trillion on Friday.
One week ago, bitcoin blasted past $50,000 after Musk’s electric carmaker Tesla revealed it had invested $1.5 billion in the unit.
Bitcoin also vaulted higher in recent weeks after corporate giants — including investment fund BlackRock, New York bank BNY Mellon and credit card titan MasterCard — embraced the digital unit.
Reps condemn $750m annual loss to gas flaring
The House of Representatives says Nigeria is losing about $750m to gas flaring annually.
It added that the flared gas could have been used to generate electricity for the country.
The Federal Government has, however, said it is committed to eliminating gas flaring by 2025.
According to the government, ending gas flaring will allow the country to harness its gas resources for maximum economic benefits and in compliance with the Paris Agreement of the United Nations Framework Convention on Climate Change.
The joint House Committee on Gas Resources, Environment and Climate Change organised a public hearing on the need to end gas flaring in the country in Abuja on Monday.
Chairman of the House Committee on Gas Resources, Nicholas Mutu, said available records showed that the country was losing $750m annually from flared gas.
Mutu said, “Gas flare is a malady that we must work together to eliminate at the shortest time possible because of its all-round adverse effects on the environment and socioeconomic wellbeing of the people of Niger Delta region, as well as on the fiscal measures of the Federal Government.
“At current estimates by PricewaterhouseCoopers, Nigeria loses over $750m in annual revenue from flared gas.
“The gas that is being flared can serve as feedstock for other industries which, if properly harnessed.”
While commending the government for the 2018 Gas Flare regulation, which imposes a penalty of $2 per million standard cubic feet of flared gas, he stressed the need for compliance with the provisions of the penalty regime.
The Minister of State for Petroleum Resources, Timipre Sylva, stated that gas flaring was an issue that the ministry took seriously, especially as there was a global agreement to eliminate it.
Sylva said the country has reduced gas flaring significantly to a very minimal level of eight per cent.
He said, “If you all recall last year, the Ministry of Petroleum started what we call the National Gas Expansion Programme and we declared year 2020 as the ‘Year of Gas’.
“At the beginning of this year, we declared year 2021 ‘The Beginning of the Gas Decade.’ We believe that with all the programmes we have in place, we are on course to achieve complete elimination of gas flaring by year 2025.”
The minister admitted that the initial date of 2020 was not feasible.
He recalled that the ministry rolled out a gas penetration programme in December 2020 which was aggressively seeking to attain total elimination and utilisation of gas being flared in the country.
Also, the Group Managing Director, Nigerian National Petroleum Corporation, Mele Kyari, noted that one of the ways of ending gas flaring was to harness its economic value.
He said even after imposing penalty on operators in the sector, only an economic driven solution may be needed.
Also, the Minister of Environment, Dr Muhammed Abubakar, who was represented by the Director of Environment, Abbah Suleman, stated that gas flaring was one environmental challenge that must be tackled.
The Speaker of the House, Femi Gbajabiamila, who was represented by Chairman of the House Committee on Judiciary, Onofiok Luke, decried that all conversations about ending gas flaring had not yielded the desired results.
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