The media impact of the Bitcoin Law in El Salvador cannot be denied. International media have covered the arrival of the legislation, which undoubtedly positions the Central American country as a global pioneer in cryptocurrencies. Coverage has been both positive and negative, but, above all, it has generated huge expectation.
What is new about El Salvador’s crypto venture? The country is not the first to issue regulations related to cryptocurrencies. Other countries such as Japan, South Korea, and Venezuela have already done so. The major differentiator in the innovation made by El Salvador is that it recognizes cryptocurrencies as legal currency.
Should the countries in the region follow suit? To promote the use of cryptocurrencies and to avoid their obstruction, the most realistic answer is yes, a basic regulation should be issued to legally recognize a growing technological and social reality would be helpful. But the regulation should be neutral, neither limiting nor imposing their use.
Why Bother to Regulate?
Regulation provides users of crypto with minimum guarantees and a legal framework, as well as the ability to structure projects using them. Governments can also generate revenue via capital gains or income taxes.
But who should regulate cryptocurrencies? Undoubtedly, this is an issue that should be addressed by central banks or similar financial institutions, listening to the private sector. It is a technical matter, which should not be taken lightly or left to political creativity, as seems to have happened in El Salvador.
Cryptocurrencies are not new; the first transaction with them took place more than 10 years ago
When should regulation be performed? This is very important to consider, and countries should not enter into a regulatory race to get media coverage. Cryptocurrencies are not new; the first transaction with them took place more than 10 years ago, when two pizzas were bought for 10,000 bitcoins in 2010. However, cryptocurrencies are based on a technology that is still under development, namely blockchain, which still has a long way to go.
The European Union, which is the world’s regulatory hub, has been discussing a 126-article regulation proposal for the regulation of crypto assets since 2019. This proposal cryptocurrencies and tokens. The proposal is known as MiCA (Markets in Crypto-Assets Regulation), which, in my opinion, should be taken into account when regulating this matter.
How can the risks associated with their use be managed? Cryptocurrencies have received bad press because of transfer methods and tracking difficulties, which allow for the perpetration of crimes.
However, if analyzed in detail, these same risks already exist with other payment methods, including cash. The other determining factor for their bad press are Ponzi schemes and other types of scams that are largely based on users’ lack of knowledge. Crimes can occur with or without the use of cryptocurrencies; they are simply tools used by criminals. But providing legal certainty to cryptocurrencies should offer improved consumer protection.
For Central American countries, crypto assets can become a real tool for development. But that requires proper regulation to protect consumers and the financial system.
El Salvador, a country where only 30% of the population has a bank account, decided to give cryptocurrency its premiere. We should take advantage of the opportunity and analyze it in detail.