Nate Maddrey and the other researchers at Coin Metrics have shared their latest State of the Network Report.
Published on June 15, 2021, the report from Coin Metrics notes that on June 9, 2021, the El Salvador Congress introduced a bill that officially made Bitcoin (BTC) legal tender. According to the Coin Metrics team, this was a “pivotal moment” for Bitcoin and crypto “at large,” as El Salvador is now the world’s first nation to formally recognize BTC as “a satisfactory form of payment for any form of monetary debt.”
While the announcement came as somewhat of a surprise, El Salvador is a great example of a country that may potentially benefit from Bitcoin adoption, Coin Metrics wrote in its report while adding that the Central American nation receives billions of dollars in remittance payments every year. The country is also ranked in the top ten nations “in terms of remittances received from the United States,” the Coin Metrics report revealed.
The report further noted that around one third or over 30% of El Salvadoran households “receive remittances from abroad.” At present, remittance payments are usually sent via money transfer services such as Western Union, the report added while pointing out that these traditional money transfers can “charge fees of upwards of 20%, and settlement can take anywhere from days to weeks.”
The report continued:
“El Salvador’s remittance process can be drastically improved by using crypto rails instead of traditional money transfer infrastructure. Services like Strike, which uses the Lightning Network for transfers, can help Salvadorans essentially eliminate transaction fees and provide nearly instantaneous international transactions. Strike launched in El Salvador in March, so the process was already underway before the official announcement. El Salvador is also the home to Bitcoin Beach, a community that built a local economy around BTC.”
The Coin Metrics report also mentioned that the Lightning Network, a layer 2 scalability solution for Bitcoin that leverages off-chain payment channels, has been “gaining traction since the beginning of 2021.” The report further noted that if usage in El Salvador continues to grow, the Lightning Network is “poised to play a big role in helping to scale BTC payments and remittances.”
Although Strike and various other services may help with enhancing the the process of sending remittances, El Salvador’s Bitcoin bill “makes some crucial improvements for those receiving the remittance payments back home,” the report noted while adding that the bill “allows for taxes and all other legal obligations to be paid in BTC.”
The report also mentioned that BTC will be “excluded from capital gains taxes since it will be considered a currency.” Coin Metrics’ report added that in a country where 70% of the population doesn’t have access to a bank account, BTC can “serve as a way to conduct basic personal banking.”
The bill also mandates that all businesses “must accept BTC as a valid form of payment.” For businesses that don’t want to hold Bitcoin it “calls for the creation of a trust at the Banco de Desarrollo de El Salvador to provide a way to instantly convert BTC into USD,” the report noted while adding that the Salvadoran government will be “setting up a $150M fund to buy BTC for this purpose.”
The report added:
“The U.S. dollar has been El Salvador’s main form of currency since 2001. While the dollar helped bring some stability, it also effectively outsourced El Salvador’s monetary policy to the US. While the United States’ monetary policy is not predictable over the long-term, Bitcoin’s is. And while fiat currencies around the world are threatened with inflation, BTC’s annual inflation is currently less than 2% and will decrease over time.”
The report continued:
“The amount of newly issued BTC halves every four years and will continue to do so until BTC reaches its maximum supply of 21M. This predictability and transparency can potentially help El Salvador and other countries rebuild their economies with Bitcoin as a foundational piece.”
El Salvador’s announcement has been drawing the attention of other nations that are curious about adopting Bitcoin or other decentralized cryptos, the Coin Metrics team noted while adding that attention is also being drawn from regulators and governing bodies such as The International Monetary Fund (IMF) which stated that El Salvador’s decision “raises ‘macroeconomic, financial and legal issues’.”
The report further revealed:
“There are currently about 18.4M addresses that hold at least 0.001 BTC – an impressive number for a decentralized currency, but still only a small fraction of the world’s population. There will undoubtedly be more pushback and challenges as El Salvador begins to adopt BTC on a larger scale. But if El Salvador’s experiment goes well, this could be a turning point for large-scale BTC adoption around the world.”
The report also noted that Ethereum (ETH) usage has declined during the last week, with an 11.1% drop in “daily active addresses” (week-over-week). Meanwhile, Bitcoin (BTC) active addresses only declined by around 0.7%, “although they dropped by 2.5% the previous week compared to a 3.3% increase for ETH.”
The report further noted that mining revenue for “both chains dropped by over 10% on the week as transaction fees continued to decline.” But despite the overall drop in activity “BTC’s adjusted transfer value grew by 23.8%, for a daily average of $10.1B,” the report revealed.
The report also mentioned:
“Bitcoin hash rate (7-day moving average) decreased by about 11% over the last week. This could partially be caused by some Chinese mining operations migrating to new locations. Following recent reports of increased regulation some miners have reportedly temporarily gone offline while they move out of the country and prepare to relocate their operations. But it also could be caused by historical season dips – hash rate typically dips during the transition from the dry to rainy season.”
The report added that Sichuan has “excessive hydropower during the rainy season, so miners will typically relocate there once the rainy season starts.” This causes hash rate to “temporarily dip as some miners go offline to move, but it bounces back after mining operations get set back up in their new location,” the report noted while adding that the rainy season just began last month (however miners usually move at the end of the month since they pay for rent monthly), so “a temporary drop in hash rate is expected.”
The report also noted:
“Hash rate is not a precise metric – there’s no practical way to directly measure the amount of total hash rate in real time, so instead hash rate is estimated using on-chain data. Block count is one of the main inputs of the estimated hash rate formula, which makes it highly sensitive to fluctuations in block time. Bitcoin blocks are designed to be mined every ten minutes on average but it’s just a target, not a guarantee. In reality the time between blocks fluctuates above and below ten minutes and differs from block to block. This variation introduces some noise into the hash rate calculation.”
The report further explained that hash rate needs to be “viewed as an estimate that has a range of uncertainty.”