The government of El Salvador announced in June 2021 that it would be making Bitcoin legal tender in the country. The new law came into effect in August, and the reactions to it were mixed. On one hand, there were the crypto advocates, who supported the move and saw it as a sign of things to come on a global scale. On the other hand, there were the skeptics, who warned of dire consequences for the already-economically-troubled nation in the long run.
However, amid all the controversy, something seemed to slip under the radar – how could El Salvador adopt bitcoin as legal tender? After all, there always were scalability concerns surrounding Bitcoin. So, what changed? What were the reasons for implementing the changes in the first place? You’ll find out the answers to all these questions in this post.
The tech that’s powering Bitcoin adoption in El Salvador
The tech powering Bitcoin transactions in El Salvador is known as the Lightning Network, which increases transaction speeds significantly. Bitcoin is powered by blockchain tech, which allows only 7 transactions every second, which is simply not good enough in terms of scalability. The scalability issue is the result of the constrained block size limit on the Bitcoin blockchain. However, the Lightning Network allows transactions to be settled outside the Bitcoin blockchain, even though it works with the Bitcoin network. This breakthrough tech is what enables people to earn free Bitcoin playing games and accomplish many other things.
All users need to engage in Bitcoin transactions through the Lightning Network to get some BTC in their Bitcoin wallets. If an individual wants to be on the receiving end of a transaction, the individual creates an invoice, which consists of a long string of alphanumeric digits. These digits are typically represented by QR codes. The individual who pays has to scan the invoice with the Lightning Wallet and provide confirmation through a digital signature. The confirmation of the payment is then sent to the receiver, and this peer-to-peer payment processing happens in a matter of seconds.
The Lightning Network also does away with high transaction fees, which is down to the fact that it processes transactions off the Bitcoin blockchain. It also reduces wait times and allows users to make micropayments.
Why is the Lightning Network important for the people of El Salvador?
Now that you know how Bitcoin’s scalability issues and high transaction fees are tackled by the Lightning Network, it’s time to know how the network will particularly benefit the people of El Salvador.
For years, people of El Salvador who have made their way out of the country to greener pastures abroad have sent money back home in the form of remittances. However, sending the money home was, until Bitcoin’s adoption, an experience that had its fair share of hassles and expenses. Middlemen that facilitated these international transactions used to take a certain percentage of the money. For example, Western Union charges 12.5% for a transfer of $100. To make matters worse, each transaction takes around 3 days to be processed. Awful tough to make ends meet and even consider having money left to find some concerts near me tonight under those conditions.
However, the Lightning Network changes things for the better – for both the people living outside El Salvador sending money back home and the ones living in the country.