Will Bitcoin be the best option for expatriates to send money to their home countries?

Nigel Green, founder and president of financial advisory firm deVere Group, expects more developing countries to follow El Salvador's precedent-setting move.

He noted that low-income countries have weak currencies and are extremely vulnerable to market changes, leading to high inflation. In these long-suffering countries, bitcoin could become more stable if it were more mature and more widely used.

"That's why most developing countries have become dependent on major 'first world' currencies like the U.S. dollar to complete transactions," he said.

"But reliance on other countries' currencies can also bring its own set of problems, which are often very costly."

This can make a country more vulnerable to foreign influence, for example, or it can make that country lose the ability to fully set its own monetary policy.

Volatility in value

However, there are disadvantages to using cryptocurrencies, which could affect people receiving remittances in El Salvador.

As a virtual asset, Bitcoin is not directly linked to the real economy in any way. Its value has fluctuated significantly over a limited period of time.

Moreover, not everyone understands how it works and the risks involved.

Unlike the established banking system, there is no mechanism in place to protect customers from fluctuations in the value of Bitcoin.

Bitcoin consumes more than half of the energy used by the world's data centers.

Ken Rogoff, a professor of economics at Harvard University and former chief economist at the International Monetary Fund (IMF), said a successful currency possesses two important characteristics, an effective form of exchange and a stable role in preserving value, and bitcoin does not possess either of those characteristics.

"It actually doesn't really get much use in the current legitimate economy. Yes, a rich person can sell it to another person, but that's not the end use. Without getting end use, this doesn't really have much of a future in the long run."

Bitcoin exists almost entirely as a speculative tool, he said.

Despite the continued climb in Bitcoin's popularity, it is rarely used for trading worldwide. People who own bitcoins tend to continue to hold on to the cryptocurrency in order to make money with it.

But some claim that cryptocurrencies can be a tool to avoid hyperinflation.

During the New Crown global pandemic, many major powers have been printing money to keep their economies running. Under the traditional form of money, if more and more money is created, the value of money already in circulation today will be eroded.

This erosion would not necessarily be noticed by people because the nominal amount of money they hold would remain the same, but they would notice that they would need to spend more money each week when buying daily necessities, eating out, and going to the movies.

Bitcoin is different from this.

The supply of bitcoins is tightly controlled and limited, and no one can create or issue more bitcoins at will.

The total number of bitcoins can never exceed 21 million, and the smallest unit is the Satoshis, each of which can be divided into up to 100 million Satoshis.