El Salvador created history on September 7 last year, when it became the first country to adopt Bitcoin as a legal tender. However, the sailing hasn’t been smooth for the Central American nation. Frequent tech glitches, a large population unfamiliar with Bitcoin’s usage, protests by citizens and an ongoing energy crisis made international observers to call El Salvador’s “libertarian” experiment a failure. The situation reached its climax when the International Monetary Fund (IMF) urged El Salvador to drop Bitcoin as a legal tender, citing risks to financial stability.
Since day one, frequent glitches in the ‘Chivo’ wallet – from bugs to blocked accounts and unauthorized charges to failed transactions – began to act as a major roadblock for the larger adoption of Bitcoin. ‘Chivo’ wallet is the national app for using bitcoin in El Salvador.
Now, as a corrective measure, the Nayib Bukele government of El Salvador has appointed AlphaPoint, a multinational crypto software firm, to support the frontend and backend infrastructure of ‘Chivo’ wallet. As per the official press release, AlphaPoint will handle the “entire ecosystem including the mobile application, mobile point-of-sale processing, merchant website portal, call center support software and administrative console”.
In an email interview, AlphaPoint co-founders Igor Telyatnikov and Vadim Telyatnikov – they are brothers – shared their perspective on the El Salvador project, the future of cryptocurrencies, central banks-backed digital currencies and India’s tryst with cryptocurrency.
Your company will manage the new backend for the ‘Chivo’ wallet. What are the challenges and opportunities?
Telyatnikov Brothers: We see an opportunity in introducing a new generation of financial inclusion for the common man. The challenge for us is that 70 per cent of El Salvadorians are unbanked. However, to encourage citizens to adopt Bitcoins, we are focusing on an intuitive UI/UX, which will make the ‘Chivo’ wallet simple to use.
This appears to be the first large-scale implementation of the ‘Lightning Network’. Why is this important and how does it affect users and businesses?
Telyatnikov Brothers: ‘Lightning Network’ enables Bitcoin to scale up for payment around the world. In El Salvador, many purchases made are less than $1. The Lightning Network enables nearly instantaneous transactions with minimal transaction fees, and the country has proven that this new technology works at scale. The Chivo wallet is a public utility that enables interoperability with the local banking system in US Dollars as well as Bitcoin transactions between Chivo wallets or any third party wallet.
Can the El Salvador model of crypto-based legal tender be replicated globally?
Telyatnikov Brothers: We believe El Salvador’s model can be absolutely replicated in other parts of the world. Dozens of countries are already looking into laws around making Bitcoin a legal tender. Some countries are also looking into making cryptocurrencies like stablecoins as legal tender. For instance, Bermuda has made it legal to pay taxes in dollar-backed stablecoins. These technological developments will enable everyone to participate in the financial ecosystem.
India recently announced a 30 per cent tax on crypto transactions. Your take on the decision?
Telyatnikov Brothers: While a heavy tax is not ideal, it is better than outright restricting transactions that can benefit the population. When one says tax on transactions, we would assume that those are not illegal transactions. I believe the cryptocurrency community in India would welcome a clear guidance from the government.
Is the El Salvador experiment promising for India? How can scalability issues be tackled in India?
Telyatnikov Brothers: We hope the ‘Chivo’ initiative in El Salvador can be a model for countries like India. The underlying technology of ‘Lightning Network’ – also used for ‘Chivo’ wallet – is ready for usage at a large scale, even in India. However, enabling access to 1.3 billion people is a different undertaking than supporting a population of about 6.5 million. In a country like India, government can focus on core frameworks, under which different businesses or municipalities could operate. The government-led initiatives might target specific underserved populations.
Globally, central bank digital currencies (CBDCs) seem to be a trend now. Can you put some light on them?
Telyatnikov Brothers: A CBDC is virtual money backed and issued by a central bank. As cryptocurrencies and stablecoins have become more popular, Central banks have realised that they need to provide an alternative. Studies have also shown that CBDCs can increase the velocity of economic activity and increase the GDP.