This week in crypto: Prices rise as El Salvador makes BTC legal tender
Why officials all over Latin America are adding laser eyes to their profile pics. Plus: miners’ China exodus, Elon’s latest BTC tweet, and Bitcoin’s Taproot upgrade explained
Published on June 14, 2021
Volatility remains, but is the market starting to strengthen? After plunging to lows of $30,800 last week, Bitcoin staged a strong recovery on Monday above $40,000. Some of the news the market might be responding to includes El Salvador becoming the first nation to adopt Bitcoin as legal tender, miners’ continued exodus from China, and the crypto industry’s embrace of renewable energy — including Elon Musk’s promise that Tesla will accept Bitcoin again when more than half of mining is powered by renewables. In the meantime, Bitcoin’s core protocol is planning to implement its first major upgrade since 2017. Called Taproot, the changes include smart-contract functionality, which is the core idea behind Ethereum.
The big picture: El Salvador makes Bitcoin legal tender
Last week, Salvadoran president Nayib Bukele (who sports laser eyes on Twitter) pushed legislation through the country’s congress that allows citizens to pay taxes in Bitcoin and requires businesses to accept the cryptocurrency as payment for goods and services.
Around 20 percent of El Salvador’s GDP comes in the form of remittances — money sent home by El Savadorans living abroad (primarily in the U.S.). “Bukele says that a large chunk of this gets lost in transfer fees, which Bitcoin can help to reduce,” Bloomberg reports. “El Salvador is a so-called dollarized economy, which means that the fiscal and monetary decisions of the U.S. government and Federal Reserve have a tremendous impact. Adopting Bitcoin could give the nation more independence.”
The Central American nation’s Bitcoin adoption may have sparked a global trend: in the past week, officials across Latin America (where high inflation rates and expensive cross-border payments have long been the norm) have been adding laser eyes to their profile pics. And officials in India, which had recently considered banning crypto, are reportedly seeking to make Bitcoin an official asset class.
The crypto movement in El Salvador first began in 2019 in a coastal town popular with surfers nicknamed “Bitcoin beach.” There, Bloomberg reports, “some 500 fishing and farming families use bitcoin to buy groceries and pay utilities, something the government envisions for the country at large.”
El Salvador’s president plans for the nation to mine Bitcoin using geothermal energy harvested from volcanoes — an emissions-free source. According to NPR, “the scorching volcano heats water underground, creating a rush of powerful steam that can spin turbines and generate electricity.”
Officials from Latin American countries including Panama, Mexico, Colombia and Argentina have signalled their intention to support bills inspired by El Salvador’s. In Paraguay, congressman Carlos Rejala told Coindesk he hopes to soon pass a bill that would draw crypto businesses to the South American nation: “The project allows cryptocurrency companies ... to finance their Paraguayan operations with cryptocurrencies, remit dividends abroad and capitalize their cryptocurrency profits in local banks.”
Reportedly inspired by El Salvador, officials in India may move to classify Bitcoin as a regulated asset class: “Top sources tracking the industry told this publication that the government has moved away from its earlier hostile stance towards virtual currencies,” reports the New India Express, “and is now considering classifying crypto as an asset class.”
In Africa, Forbes reports that Tanzania’s new president has called on the country’s central bank “to begin ‘working on’ facilitating widespread use of cryptocurrencies in the East African nation.”
Traditional global-finance institutions remain skeptical. The International Monetary Fund challenged El Salvador’s legislation, claiming the legal-tender law "raises a number of macroeconomic, financial and legal issues that require very careful analysis."
How do El Salvadorans themselves feel about the bill? According to Coindesk, they're divided: “some El Salvadoran residents are excited by the thought of bitcoin being treated as legal tender, while others are concerned it may just be a tool for corrupt officials.”
China’s crypto crackdown and the path to renewable mining
In recent weeks, Chinese officials have cracked down on crypto mining — rocking the industry, which has been concentrated there for years, with as much as 65 percent of Bitcoin mining estimated to take place in China as of April 2020. But for many Bitcoin supporters, this has been a positive development — many mining operations in Xinjiang were powered by coal and other fossil fuels, so green-crypto advocates support the move. Likewise, the idea of so much mining being concentrated in a single country has long troubled advocates of crypto’s core decentralization concept.
Miners have begun an exodus to regions such as North America. Most recently, miners in a major economic and technological development zone located in Xinjiang province have been ordered to shut down their operations immediately.
Chinese mining pools have seen a significant drop in mining power — proof that the crackdown is being enforced.
El Salvador’s volcanic-energy concept is just one of many sustainable mining initiatives that’s been announced recently. A firm called Manhattan Solar Partners announced a plan to build the largest renewable-powered crypto mining facility in the U.S. in Texas.
Hut 8 Mining, which was recently listed on Nasdaq, says it will be pursuing a green-crypto strategy: “We are exploring several sites in North America [for expansion], with a focus on seeking out clean energy sources… Ultimately, we will look to expand in regions that offer competitive energy prices and clean energy.”
As interest in renewable mining grows, Elon Musk said on Sunday that Tesla will once again accept Bitcoin when more than half of mining is powered by renewable energy — after which prices briefly spiked by more than 12 percent.
Spotlight: Lightning Network and Taproot
Some obstacles to Bitcoin’s adoption for uses beyond investing are the sometimes high fees and long transaction times. Even though current Bitcoin transaction fees are near the lowest they’ve been all year (around $2.00), that’s a non-negligible sum for potential users in lower-income countries — and fees are often much higher. Solutions in the form of the scaling protocol Lightning Network and Taproot (the biggest upgrade to Bitcoin in years) are on the horizon. Here’s how they work:
Taproot is an upgrade to the Bitcoin core protocol that was voted on and approved by the global mining community this week and will take effect in November. A major change is enabling limited smart-contract functionality — a core element of Ethereum that has sparked the development of everything from DeFi to NFTs.
One of the ways Taproot works is by tightly incorporating the Lightning Network, which is a speedy parallel blockchain that can process transactions much more quickly and cheaply than the core blockchain (fees are typically fractions of a cent).
Taproot can enable more efficient transaction-fee markets, which should also make transactions cheaper and enable greater privacy. And it improves privacy for “multi-signature” Bitcoin transactions, which are used by organizations to more safely store Bitcoin (multi-sig Bitcoin addresses require signatures from multiple participants to authorize unlocking coins).
The El Salvador news has also pushed Lightning Network into headlines, because the nation partnered with a Lightning Network-based payments app called Strike to build Bitcoin infrastructure.
Twitter and Square CEO Jack Dorsey said that Twitter or its upcoming decentralized counterpart Bluesky will utilize the Lightning Network. (Dorsey is an investor in Lightning Labs, a developer of the Lightning Network.)
Statistics show the Lightning Network gaining momentum. Nodes on the network have more than doubled over the past year and the total BTC locked in Lightning has recently reached all-time highs of 1,400 indicating growing interest and participation in the scaling solution.
In other news
In other news
Even as China cracks down on crypto trading and mining, the South China Morning Post reports that the nation “plans to accelerate blockchain development and adoption in push to become a world leader in the technology by 2025.”
"Nearly half of millennial millionaires have at least 25% of their wealth in cryptocurrencies" according to a CNBC survey: “The results highlight a new generational divide in wealth creation from crypto, with younger investors able to earn vast fortunes from the surge in the prices of bitcoin, ether and other digital currencies.”
In the latest pro-crypto move by Texas, which seeks to become a hub for the industry, the Texas Department of Banking has allowed banks there to hold crypto for clients.
Interactive Brokers, one of the largest of the U.S.-based “e-brokers,” announced it will offer crypto trading by the end of the summer.
One other possible reason prices rose this week? A major global banking regulator announced it would introduce capital requirements for banks dealing in crypto.
Another week, another round of Bitcoin ETF applications: “Invesco, a U.S. investment firm with $1.3 trillion in assets under management, has filed two applications for crypto-specific exchange-traded funds,” Decrypt reports. “The two applications join more than a dozen other hopefuls looking to launch cryptocurrency ETFs.
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