The first Bitcoin nation in the Central America
El Salvador has successfully passed an unprecedented bill that makes bitcoin legal tender in the country, despite the pressure from the IMF. The bill details that taxes can be paid in bitcoin, and the cryptocurrency must be accepted as a payment method by any local merchant except for those who do not have an access to the technologies required to receive transactions.
Since bitcoin will be recognized as an official currency after the law goes into force in September this year, capital gains tax won’t apply to bitcoin, just like to any other legal tender. El Salvador’s president Nayib Bukele has also promised immediate permanent residence for crypto entrepreneurs, adding that El Salvador is one of the few countries in the world that doesn’t have property tax.
While the historical news about nation-wide adoption of Bitcoin was cheered on social media, skeptics drew attention to the fact that the infrastructure for such a transition might not be ready yet. Bitcoin’s Lightning Network mobile wallets lack ‘watchtowers’ to ensure safety of user’s funds in a non-custodial way, or require some sort of trust and KYC. On-chain transaction fees on the Bitcoin network are currently hovering around $5 mark and can increase dramatically when we enter another bull cycle. For example, just two months ago the average fee climbed above $60 per transaction, according to BlockChair.
The ability to use bitcoin instead of a traditional banking system is one thing, but being obligated to receive bitcoins during network congestion with high transaction fees is a completely different story. Seems like the easiest solution for many vendors would be to use a broker who will convert bitcoins into fiat currency once a payment is received. That should shield merchants from network congestion and price volatility, but requires an extra middleman with additional fees.
It is worth mentioning that in 2001, El Salvador’s national currency was replaced by the US dollar, meaning that its central bank cannot just print money into existence in order to pay for government spending in case of budget deficit.
Such a bold move by the rapidly changing Central American country can prompt other smaller nations in the region to recognize bitcoin as legal tender, with all eyes on crypto-friendly Caribbean islands, many of which use the Eastern Caribbean dollar as their official currency.
Bitcoin miners leave China
At least three Chinese provinces clamped down on cryptocurrency mining, while nation’s popular search engines and social media sites started censoring searches for Chinese exchanges OKex, Huobi, and Binance. The ban caused a sharp drop in Bitcoin’s hashrate, while miners are relocating to other countries.
Bitcoin has long been criticized for its dirty energy usage since major miners were historically located in China, where coal was presumably subsidized by the government.
The public pressure, fueled by misconceptions, rose to the point that earlier in May, Tesla had to reverse its decision to accept bitcoins as a payment method. Later, though, the American e-car manufacturer stated that Bitcoin payments will be resumed once there is confirmation that at least 50% of the energy used by miners comes from renewable ones.
Amid growing concerns over crypto energy consumption, the Bitcoin Mining Council has been formed with a goal of increasing transparency of the mining industry and educating the public about Bitcoin’s energy sources.
In other news
Taproot - Bitcoin’s largest upgrade in the last 4 years - has been finally locked in for the activation through miners’ vote. The upgrade is now set to go live in November, bringing more privacy and efficiency to multi-signature, multi-input transactions.
Decentralized finance dashboard Zapper found a vulnerability in its old “Polygon Bridge” smart contract that allows an attacker to withdraw funds from users’ wallets without their consent. The Zapper team decided to exploit the vulnerability by themselves and rescue the funds. Since most DeFi projects sacrifice security for UX by requesting unlimited approvals to spend users’ funds, it’s important to set custom values when interacting with protocols and revoke unnecessary approvals. Polygon approvals can be revoked with this tool.
Anonymous developers behind HolaSwap deployed a copy of Uniswap’s V3 source code to the Binance Smart Chain, defying the Business Source License 1.1 that restricts the use of Uniswap’s latest code for two years. The move came as no surprise, but it’s hard to predict what is about to unfold. Will we see any legal ramifications or even censorship from blockchain businesses?