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El Salvador struggles to adopt Bitcoin despite government pressure

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Each country uses crypto differently.

The Salvadoran government has encouraged the use of Bitcoin, while Argentina’s crypto boom has been largely organic. The two paths – top-down and bottom-up – are quite distinct in their approaches and results.

It’s too early to tell which approach has the best chance of long-term success, but so far it seems the bottom-up approach works best for crypto adoption in a country.

From top to bottom: El Salvador

When El Salvador made Bitcoin legal tender, all businesses were required to accept BTC for payments. To encourage Bitcoin adoption, the Salvadorian government released a custodial digital wallet, gave its users $30 worth of free Bitcoin, and subsidized transaction fees.

Despite these incentives, researchers at the University of Chicago found that only 4.9% of all sales in El Salvador are made in Bitcoin. Researchers also found that 88% of businesses exchange Bitcoin revenue for fiat currency.

“You can’t just replace one aspect of a financial system and expect success,” Messari analyst Dustin Teander told The Defiant. “Each part [of the financial system] builds on each other, so if they don’t all work well together, there’s additional friction. El Salvador struggles with relatively high crime rates, natural disasters and rising poverty rates according to the World Bank.

The researchers found that the top Bitcoin users in El Salvador were young, educated men, and nearly 90% of the surveyed population did not use mobile banking at all.

“Overall, despite bitcoin being legal tender and significant government incentives, cryptocurrency is largely not an accepted medium of exchange in El Salvador,” the authors said. wrote.

President Nayib Bukele is pushing to change that. He announced in November that the government planned to build “Bitcoin City” at the foot of the Conchagua Volcano. “The idea is that the local economy will run on Bitcoin, and the city will be powered by geothermal energy from the volcano,” wrote Laurie Clarke of MIT Technology Review.

Many people are not convinced that the Bitcoin City plan is worth it. Johns Hopkins economist Steve Hanke tweeted that Bitcoin City “is an absurd stunt of a political dictator” and in response to El Salvador’s crime problem, tweeted “Bukele is too busy designing Bitcoin City to fight crime.”

From bottom to top: Argentina

Argentina’s inflation rate hit a multi-decade high of 6.7% in March, hitting an annual inflation rate of 55.1% according to the National Institute of Statistics and Censuses (INDEC). With inflation rising for years there has been a grassroots movement around crypto.

Argentina was ranked 10th on Chainalysis 2021 Global Crypto Adoption Index, an index that takes into account the value received on the chain, the retail value received on the chain and the volume of exchanges between peers. An annual Ethereum conference, ETHBuenosAires, has been held in Argentina since 2018.

On May 2, Argentina’s largest private bank, Banco Galicia, added a feature in its app allowing users to buy Bitcoin, Ethereum, USDC, and XRP. Within a week, the decision was countered by the government. On May 7, Argentina’s central bank banned banks from offering unregulated services for digital assets.

Despite the ban, Argentinians are free to hedge their bets against the inflated peso and invest in crypto through decentralized exchanges. CoinDesk reported that in Argentina alone, crypto exchange Lemon attracted one million users and 6-month-old Belo surpassed 170,000 users.

United States

While companies like Coinbase and OpenSea were founded in the United States, crypto adoption in the United States has certainly faced challenges. One thing that has accelerated adoption has been rising consumer prices – inflation.

Inflation is on the rise 8.5% for the period March 2021 to March 2022 according to the Bureau of Labor Statistics. This was the biggest 12-month advance since December 1981. With the US dollar losing its purchasing power, people turned to crypto.

The United States was ranked 8th on Chainalysis 2021 Global Crypto Adoption Index. In November, Pew Research reported that 16% of Americans said they have invested in, traded in, or used crypto. Nearly nine in ten Americans say they have heard at least a little about crypto.

Lately, US regulators have mainly focused on stablecoins. Following Terra’s collapse earlier this month, US Treasury Secretary Janet Yellen said it was “urgent” for Congress to pass new legislation to regulate stablecoins.

The crypto buzz in America was built without government incentives. In fact, it has been fueled by corporations and individuals despite government monetary policies, outdated securities laws and confusing tax policies.

For continued growth, Teander de Messari believes the infrastructure must expand. “That means merchant apps, payments, e-commerce, etc. Frankly, we’re still a long way from that, but also closer than you think.”

America’s and Argentina’s bottom-up approaches could be one of the reasons everyone from your brother to your grandmother is talking about crypto – everyone is involved, not just the government behind it. imposes on his people.