On March 14, 2024, the cryptocurrency bitcoin peaked at a value of $73,750 and a market capitalization of $1.44 billion. Bitcoin’s increasing popularity forces us to evaluate its future as a currency. While bitcoin and other cryptocurrencies do encourage foreign investment and make banking more accessible, the instability and untraceability of bitcoin makes it too dangerous to have widespread use in international trade and business.
The only country in the world thus far to have accepted bitcoin as legal tender is El Salvador. Under President Nayib Bukele’s administration, bitcoin has taken on the same status as the U.S. dollar. And, El Salvadorian businesses have had to accept bitcoin as payment since this September 2021 decision.
Prior to El Salvador’s recent elections in early 2024, the country had already launched multiple initiatives to encourage the use of bitcoin by its citizens. For instance, the national government launched Chivo, a digital bitcoin wallet that can be used for fee-free bitcoin transactions. To promote the use of Chivo, the government promised deposits of $30 in bitcoin to each citizen who downloaded the app when it was launched. President Bukele and his government hoped the deposits would encourage up to 40 percent of the population to pay with bitcoin. The administration placed an emphasis on targeting citizens who do not use traditional banking avenues to begin using the app for remittance payments.
President Bukele won reelection in 2024 in a landslide victory, garnering close to 85 percent of the vote; his party also gained an overwhelming majority in the legislature. While Bukele’s reelection is mostly due to his popular clampdown on gangs in El Salvador, he and his party have taken the victory as a mandate to expand their plans for incorporating bitcoin into the national economy. The main focus of Bukele and his government now is the completion of Bitcoin City, an ambitious metropolis centered around the mining of bitcoin. The planned development of Bitcoin City includes residential communities, commercial areas, recreational sites, and bitcoin mining infrastructure, all powered by geothermal energy from the nearby Conchagua Volcano. However, since its announcement in November 2021, Bitcoin City has made slow progress in its development amidst nationwide financial struggles and money shortages, with Bukele still unable to fulfill his promise to authorize $1 billion in bonds to support its construction. To try increasing the funding for Bitcoin City, Bukele’s government has also launched the Freedom Visa Program, which would give Salvadoran citizenship to foreign investors that give $1 million in bitcoin to the Bitcoin City project.
In March 2024, Bukele announced that El Salvador had $407 million worth of bitcoin holdings, but this estimate was given when bitcoin was at its highest value, demonstrating the instability of the cryptocurrency. For example, in 2022, the currency had nearly lost 60 percent of its value, which caused a loss of approximately $60 million for El Salvador. Additionally, the Chivo bitcoin wallet has largely failed – less than 2% of remittance payments are made using the system. A survey from 2023 indicated that less than 20 percent of people in El Salvador continue to use the wallet.
Likewise, bitcoin has not been widely accepted by Salvadoran businesses. Another survey performed last year found that 86 percent of businesses in El Salvador had never conducted a sale in bitcoin and only 20 percent of businesses actually accept bitcoin as payment. The World Bank has also refused to provide the support that El Salvador has previously requested for its implementation of bitcoin as legal tender due to environmental and transparency concerns.
While El Salvador remains the only country to adopt bitcoin as legal tender, many so-called “bitcoin cities” have emerged with the goal of creating bitcoin circular economies. A bitcoin circular economy is when all services and goods are paid for through bitcoin. While almost every bitcoin circular economy project remains ongoing (and many remain underfunded), they have encouraged strong investment from cryptocurrency companies and business owners to revitalize local economies.
The city of Lugano, located in the southern, Italian-speaking region of Switzerland, launched its Plan B initiative in collaboration with Tether, a company that issues its own cryptocurrency. Lugano seeks to become the “European capital of bitcoin” by accepting both bitcoin and Tether’s cryptocurrency as payment. The city government of Lugano has already agreed to accept bitcoin as payment for government fees ranging from taxes to public museum passes. It is providing local businesses with systems that accept bitcoin payments through the use of a QR code. Through the Plan B initiative, Lugano is also receiving a $106 million investment from Tether to lure blockchain and cryptocurrency startups to the city.
Similarly, in Brazil, anonymous donors and business owners are seeking to turn the city of Jericoacoara into a bitcoin circular economy called Praia Bitcoin. After Praia Bitcoin received a donation of 1.23 bitcoins in 2022 (approximately $32-40,000 USD based on its evaluation in mid-2022), it used the funds to develop Brazil’s first public lightning service provider to facilitate transactions in bitcoin. The remaining funds from the donation are being used to develop open-source tools for local vendors and provide them card readers connected to the lightning service provider. As of April 2023, less than 1,000 of the 20,000 residents of Praia Bitcoin have bolt cards, the bitcoin debit card needed to purchase goods using bitcoin. But, bitcoin is gaining popularity among smaller vendors in Praia Bitcoin due to 1) the large fees charged by companies like Mastercard to accept card payments and 2) growing distrust in international financial institutions. With the lightning transaction system, the financially-burdened vendors in Praia Bitcoin no longer have to cover the costs charged by payment card companies.
In many developing regions like Southeast Asia, there has been an increase in the use of bitcoin and other cryptocurrencies because of its greater accessibility compared to traditional banks and its relative ease in sending remittance payments. In 2021, the United Nations Conference on Trade and Development stated that 15 of the top 20 cryptocurrency-using countries are developing countries. In the Philippines, for example, crypto-earning video games have become widespread, with many players being able to earn above the average wage through these games. Over 40 percent of Filipinos do not have a bank account, but a majority of them have access to the internet, enabling them to use and earn cryptocurrency much more easily. This trend is visible in other Southeast Asian countries such as Vietnam, where around 70 percent of the population does not have a bank account, and Indonesia, where around 66 percent of people do not have bank accounts. Moreover, over 600,000 Vietnamese workers living outside of Vietnam send remittance payments to their families, totalling around $3 billion annually. But, more recently, more of those sending remittance payments prefer to use cryptocurrency because of its lower transaction costs.
Despite the potential benefits, bitcoin – and cryptocurrency as a whole – is incredibly unstable due to its relative newness and a lack of regulation. Many international organizations have taken firm stands against the widespread adoption of bitcoin and cryptocurrencies. Following El Salvador’s adoption of bitcoin as legal tender, the International Monetary Fund (IMF) recommended that El Salvador reverse course and remove bitcoin as legal tender, citing its instability and the collapse of various other crypto assets in the past few years. The IMF also raised concerns that bitcoin poses a threat to the monetary sovereignty of El Salvador, since the government lacks significant control over the value of bitcoin. Furthermore, the IMF believes that the prevalence of large investors in the cryptocurrency space will weaken the power of financial authorities in regulating cryptocurrency and further contribute to its volatility.
The IMF released a nine-point plan in 2023 to aid its member states in creating cryptocurrency policy. The first point of the plan explicitly warns states from giving any form of cryptocurrency legal tender. Other points of the plan call for the international and domestic monitoring of crypto assets and its effect on the global financial system. Lastly, the IMF requests that states research more stable alternatives to replace cryptocurrencies in international financial transactions.
These international financial organizations are also worried about the usage of cryptocurrency to fund wars and terrorist organizations and to commit financial crimes. While cryptocurrency can be tracked (because blockchain records the addresses of the wallets used in a cryptocurrency transaction), there are methods to avoid tracking. One such technique is the use of crypto mixers. Crypto mixers, like Bitcoin Fog, are automated programs that allow criminals to launder cryptocurrency from illegal transactions by mixing it with cryptocurrencies from other sources, rendering them untraceable to any authorities. For example, North Korea runs a number of cybercrime organizations, such as Kimsuky and Lazarus Group, that steal bitcoin through hacking. North Korean cybercrime groups stole about $1.7 billion in cryptocurrency in 2022 alone and were responsible for at least 20 hacks in 2023. The cybercrime groups have been connected to hacks on Horizon Bridge and Axie Infinity – with much of the stolen money being used to fund North Korea’s heavily sanctioned nuclear weapons program. Moreover, American and Israeli intelligence agencies have also identified fentanyl manufacturing groups, trafficking organizations, Hezbollah, and Quds Force as groups that are funded through cryptocurrency, either through donations or thefts of cryptocurrencies.
Bitcoin remains an ever-changing form of currency. It is clear that bitcoin – and cryptocurrency – should not have a place in the global economy. As bitcoin becomes intertwined with the fight against global crime and terrorism, international financial organizations must work harder to slow its spread.
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