El Salvador made headlines last year as the first country to accept bitcoin as a legal tender. The measure is controversial both nationally and internationally, as it is praised for its potential to provide financial services to a large portion of El Salvador’s unbanked population and has been criticized for its top-down application. This has created a sense of insecurity and made some Salvadorans feel they have no choice, even though sites like El Zonte already accept bitcoin (BTC) as payment through organic mining before the law.
Although these arguments are both for and against the law, they are not really contradictory. Although the decision may have been made by the government, it provides financial services to new sections of the population. However, not all governments are interested in declaring bitcoin a legal tender, which makes us think of a new question: how can we stimulate the introduction of cryptocurrencies in emerging markets like El Salvador without government participation?
About the topic: What is really behind El Salvador’s “bitcoin law”? Expert answer
Non-banking services in Latin America
In August 2021, the World Bank reported that almost half of the population in Latin America and the Caribbean (LAC) are bank accounts, which means they do not have access to a bank account or other financial services. These non-bank people mentioned the cost of maintaining an account, distance from financial institutions, lack of necessary documentation and lack of trust among the most common reasons for not doing business with banks.
Not doing business with banks creates serious problems that make it difficult for people to securely receive payments, save money, transfer money outside the community or access loans and credit scores. In short, banking can not make it nearly impossible for individuals to carry out the daily financial transactions that many of us take for granted.
Cryptocurrencies are changing this by helping people access online financial services such as savings apps, lending platforms and even micro-insurance solutions from their mobile devices with far fewer obstacles and lower fees than traditional financial institutions require. It is these three characteristics of cryptocurrencies – availability, availability and anonymity – that make Bitcoin an attractive alternative for non-bank banks in countries such as El Salvador.
Understand government intervention
However, it is important to distinguish between effect and implementation. While mass adoption of cryptocurrencies such as Bitcoin may have a profound positive impact on the non-banking population, offering a new alternative to accessing key financial services will provide more than a few ways to encourage such adoption.
El Salvador has chosen government intervention by introducing bitcoin as a legal tender as part of a broader strategy to lift El Salvador out of poverty. In fact, the government itself has chosen to invest its reserves in bitcoin, taking the risk of fluctuations in favor of potential profits and keeping its promise to maintain infrastructure such as schools and public institutions across the country.
Related topics: El Salvador: How it started and how it will happen with the Bitcoin law in 2021
Thinking about mass adoption again
However, government intervention is not the only option. As many Latin American governments express disinterest in accepting bitcoin as a legal tender, we have begun to look at options to encourage mainstream adoption from a more mainstream perspective. In my opinion, there are five main factors we need to consider: mobile access, education, financial barriers, institutional adoption and alternatives to Bitcoin.
Improved mobile availability
To anchor the mainstream adoption of cryptocurrencies, fintech companies operating in the crypto area must offer mobile solutions to users. In Latin America and the Caribbean, less than 50% of the population has fixed broadband, only 9.9% have high-quality fiber at home, and 87% of the population live in 4G coverage. This is 37% more who can access financial services on mobile devices. If fintechs can create mobile finance solutions, they can make it more convenient and intuitive for new users to interact with this new technology.