28.11.2021

What is the main problem with the support of Bitcoin by the government of El Salvador?

Bitcoin officially became legal tender in El Salvador on September 7th. However, in the end, the positive news about the adoption of cryptocurrency left many questions. One of them is who actually controls the private keys to the wallets to which the country officially transfers the purchased bitcoins?

Local experts are seriously concerned about this topic. Here are the details of the situation.

Recall that a private key is a unique combination of letters and numbers to gain access to the contents of a cryptocurrency address. It is generated from a mnemonic phrase that is generated during wallet setup. For example, in the case of the already familiar Ledger devices, it consists of 24 words. In this case, phrases can also consist of 12 and 18 words.

A private key is required to interact with cryptocurrencies on a specific account, that is, to carry out sending operations and other similar actions. It can be argued that it is the owner of the private owner who is the full owner of the cryptocurrency at the address – and regardless of its location.

El Salvador’s President Nayib Bukele reported on Twitter several times that the state was officially purchasing coins. To date, his crypto balance is at least 700 BTC , which is the equivalent of $ 29.7 million. This is a relatively small amount compared to MicroStrategy’s 114,000 BTC balance, but still significant. Especially considering that digital assets are clearly purchased with taxpayer money.

Against this background, many began to realize that the holder of the private keys from El Salvador’s bitcoins is unknown. And this is a serious cause for concern.

Where are El Salvador’s bitcoins located?

The topic of crypto purchases on the air of the Decrypt podcast was raised by Nolvia Serrano, COO of the cryptocurrency wallet provider BlockBank. Here is a quote from an expert in which she shares the details of what is happening.

There are so many things on this issue that have not been disclosed to this day. For example, who has private keys to government crypto wallets? In addition, what criteria are used when deciding on the purchase of the next batch of coins? We don’t know that.

The question of the frequency of BTC purchases is really unknown. Although, given that this is being carried out on behalf of the state, it would clearly be worthwhile to develop some kind of rules.

President of Salvador Nayib Bukele

Recall that the day before the entry into force of the law on the legalization of Bitcoin, the government of Nayyib Bukele reported on the purchase of 400 BTC . This trade quickly brought a noticeable loss. Still, at the time of the purchase, Bitcoin was trading at the level of 53 thousand dollars , but a day later its price fell by more than 10 percent . To date, the cryptocurrency is worth $ 42,450 .

Falling Bitcoin price over the past 30 days

This did not stop Bukele: last week he announced another purchase of BTC. Serrano insists that so far there has been no explanation for a strategy to bolster the country’s economy in case Bitcoin’s price plummets again. She continues.

Do they want to buy even more coins? What is this process, who oversees and controls all this?

Many are worried not only about the security of private keys, but also about the transparency of the providers of the national cryptocurrency wallet Chivo, which was launched in the country on the eve of the legalization of Bitcoin. The lack of accurate information is increasing tensions both among the local population and in the cryptocurrency community every day, Serrano said.

There is no room for mistakes, and everything should be as transparent as possible , since this principle is important to the crypto community. The El Salvadorian government is showing something that goes against the core of Bitcoin.

It should be noted that the local population also perceives government innovations with a great deal of pessimism. In July, a poll commissioned by the Center for Civic Studies at Francisco Gavidia University found that 77 percent of Salvadorans believed legalizing BTC was “not a smart move . Many of these people simply don’t understand how to use crypto.

We believe that this criticism of the government’s actions is relevant. And although the recognition of Bitcoin as an official means of payment in the country will in any case become a historical event, you also need to behave correctly with cryptocurrencies. And this also applies to the transparency of storing private keys from the state crypto wallet, as well as the work of Chivo and the disclosure of their providers. Otherwise, residents may lose the desire to get involved with digital assets.

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