As Bitcoin adoption increases, more rumours are circulating over which nation-state will be next. In this blog, we identify who it could be!
El Salvador is the first (and likely won’t be the last) country to go onto a Bitcoin standard. Throughout this blog, I will outline the reasons why more countries could accept the digital currency as legal tender. At the end, I will go over which countries are considered the favourites to be next.
Firstly, the current financial state of play is rather bleak, to say the least. On a macro level, inflation has recently soared as the entire world has had to come to terms with the COVID-19 pandemic. Due to the majority of the world going into lockdown, productivity almost completely stalled. As a result, governments had no choice but to print more money. Although the US Federal Reserve has printed more money in the last two years than the previous 40, it is simply a lie to use the pandemic, or more recently, Vladimir Putin, as the scapegoat. In reality, since the US left the gold standard back in 1971, the world’s reserve currency has been a printing machine, using credit as a means of kicking the can down the road. Inevitably, all the printing would catch up on them sooner rather than later, and here we are today with the US and UK economies at their highest inflation rate in three decades.
Bitcoin provides a solution to the calamity highlighted in the previous paragraph. For instance, the digital currency has sound money principles that alleviate the stresses of Fiat currencies. In particular, Bitcoin has a known fixed supply cap which ultimately means that no government or central authority can inflate nor tamper with the issuance. This is extremely important for smaller countries such as El Salvador that previously relied on major economies such as the US to act responsibly. The consequence of currency debasement from the world’s reserve currency has a catastrophic ripple effect on all other countries, especially smaller GDP countries. Therefore, more countries like El Salvador will undoubtedly opt out and look for an alternative currency that is technologically far-superior and also limited in supply.
When there is a transformational shift as big as a monetary network at the nation-state level, psychology plays an important role. El Salvador is undisputedly a pioneer and trailblazer by becoming the first country to accept a cryptocurrency as legal tender. But when does an experiment develop into truth? El Salvador is currently enjoying the benefits of first-mover advantage and numerous innovators in the industry are looking to onboard their technology in the nation-state. In addition, they receive the full effect of Bitcoin’s lightning network, whereby previous remittance fees using Western Union that charged up to 30% now cost a fraction of the amount, and almost instantaneously. Meanwhile, this makes other countries stand up and notice, before someone else decides to follow suit. From this moment, game theory is well underway and it becomes a race not to be the last one on board. Otherwise, you miss out on all the innovation and become the equivalent of Blockbuster versus Netflix but on a geopolitical scale.
Could Venezuela be the first South American country to accept Bitcoin as legal tender? Considering they have the highest inflation rate in the world at over 450%, it is fair to say that Venezuela’s Bolivar is finished. Unfortunately, hyperinflation has set in and the reality for its citizens becomes turning their worthless paper money into bags and other items that can be sold. Venezuela ought to scrap its currency and consider its options besides the USD.
Over a billion people on the planet are unbanked! How can any individual store their wealth or property safely and effectively without one? Bitcoin solves this problem with just the need for a phone and an internet connection. Fortunately, more than 7.5 billion people own a phone, which makes storing their wealth a lot easier than before. Despite current government disapproval of crypto, Nigeria remains the second-highest country for Bitcoin trading, only behind the US. This demonstrates how popular Bitcoin is in developing countries.
This would make a lot of sense because Tonga is very similar to El Salvador in terms of size and GDP. A transformation to a Bitcoin standard would be one of the quickest considering legislations in support of Bitcoin are already in place. A former member of parliament in Tonga, Lord Fusitu’a, has confirmed that Tonga is currently in the process of making Bitcoin legal tender, with an official announcement estimated at the end of the year. If this is accurate, Tonga would be next.
It might seem inconceivable for a country as large and established as Russia to become the next country to adopt a Bitcoin standard, but never say never. Recently, Russia has been flexing its territorial muscles and is always looking at a way of avoiding economic sanctions from other countries. Bitcoin could become a useful method of overcoming this. With that said, Bitcoin is censorship-resistant and as such remains problematic for an authoritarian government. Nonetheless, more positive news continues to come out of Russia in regards to Bitcoin, heightening its speculation and future possibilities with crypto in general.
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