El Salvador’s strides in the crypto space continue to expand following its partnership with leading blockchain firm Koibanx to unveil a blockchain infrastructure supported by Algorand, an energy-efficient blockchain that uses pure proof-of-stake as a consensus mechanism. Read more…
El Salvador’s Bitcoin law was greeted with optimism, with many acknowledging that the mainstream adoption of cryptocurrency or digital currency was taking shape. President Nayib Bukele first hinted at adoption back in July at the Miami Bitcoin Conference 2020, noting that his country was ready to pick up the mantle amid the raging scepticism. Following this, El Salvador took its strides in the crypto ecosystem a notch higher by embarking on several projects, including a major partnership with Koibanx, a leading Latin American blockchain and cryptocurrency firm.
El Salvador’s Bitcoin decision triggered a flurry of reactions considering that it was the first country to adopt the benchmark cryptocurrency as a legal tender. Its giant strides did not stop there, as it made further attempts to mine Bitcoin using its volcano wells as a clean energy source, a significant shift from the carbon-inducing energy source that powers the activities of miners on the Bitcoin network and other proof-of-work (PoW) blockchains. As if that was not enough, El Salvador purchased Bitcoin on three separate occasions between September 20 and late October, bringing its total holdings to 1,120 bitcoins worth $68 million based on the current price.
What El Salvador’s Partnership with Koibanx Represents
Koibanx announced its partnership with the government of El Salvador in late August, noting that it was aiming at building blockchain infrastructure for the Central American country using carbon-negative and green blockchain Algorand. For El Salvador, this represents a significant step toward developing its technology and deepening its foothold within the crypto ecosystem, one that commenced with the recent adoption of Bitcoin as an official currency alongside the US dollar. In its official release on Medium, Koibanx stated that Algorand is the perfect platform to host the distributed ledger technology (DLT) infrastructure El Salvador plans to unveil.
Algorand, developed in 2009 by MIT professor Silvio Micali, has become one of the most adopted blockchain technologies since its launch in light of its multifarious functionality, even to the point of addressing the blockchain trilemma. ‘Blockchain trilemma’ is a term Ethereum developer Vitalik Buterin coined; it advances the notion that no one blockchain combines speed, security and scalability simultaneously in its infrastructure. However, the Algorand blockchain has evidently watered down this notion by combining all three capabilities without hassles, supporting decentralised applications (DApps) for decentralised finance (DeFi), non-fungible tokens (NFTs), and Web3.
Why did El Salvador Choose Algorand?
Over the years, the Algorand blockchain has proven its mettle as a hub for DeFi and every activity found within the ecosystem. This is due to its highly scalable infrastructure that helps it facilitate thousands of transactions within seconds. Currently, over 700 organisations have adopted Algorand as a platform to pivot their applications in both finance and other sectors. These include the Italian SIAE (Italian Society of Authors and Publishers), a copyright agency in Italy and PlanetWatch, a French start-up that monitors air quality.
More than ever, Algorand represents the future of cryptocurrency mining because of its pure proof-of-stake (PPoS) consensus mechanism that adopts a carbon-negative and green approach to crypto mining. This sharply contrasts with what is obtainable on PoW blockchains, which consume a great deal of energy to keep processes running. One of the recent rising concerns about PoW blockchains is carbon pollution. Algorand’s PPoS mechanism is a major shift away from that as it intends to make cryptocurrency mining more climate friendly.
El Salvador is pursuing the same path with its volcano-powered Bitcoin mining initiative, which it started in September. Bukele shared a short video clip on Twitter in the same month, showing technical engineers installing mining rigs. El Salvador’s volcano wells will assist it in contributing to the Bitcoin ecosystem as a miner.
Essentially, Algorand’s key components make it a perfect fit for the blockchain infrastructure that El Salvador is building. CEO and founder of Koibanx Leo Elduayen explained that the technology required to accommodate the needs of the entire country had to be robust. Admitting that Algorand fits the bill, Elduayen added that it meets their requirements in terms of speed, security and scalability.
Algorand’s Role in El Salvador’s Blockchain Infrastructure
Algorand bridges the wide gap between centralised finance and DeFi by bringing financial applications closer to average users and increasing their controlling power. The energy-efficient blockchain has been deployed to host popular stablecoins like Tether (USDT) and USD Coin (USDC). Koibanx has employed the blockchain as a tool in several recent state-based public and private initiatives across Latin America to unveil blockchain-based solutions like a COVID-19 certification system, a point-of-sale credit issuance system and a host of several smart contract financing platforms. In 2020, Marshall Islands announced Algorand as its platform of choice for the development of its central bank digital currency (CBDC).
What El Salvador aims to achieve with Algorand in light of its collaboration with Koibanx is not related to finance, a state-owned digital currency or even its recently passed Bitcoin law. Algorand will serve as a medium to store El Salvador’s official documents. Additionally, property titles and exchanges between private parties will be recorded on the blockchain. El Salvador plans to render custodial services using Algorand, so it will be possible to store documents belonging to a person or legal entity in one address.
To achieve this, Koibanx will extend its collaborative efforts to the National Registry Center of El Salvador. Transactions between private businesses or individuals and governmental bodies will be recorded on Algorand. These transactions could range from the exchanges of shares to bonds and bank guarantees. Although there are rumours that El Salvador plans to develop a national stablecoin, the government is yet to confirm them.
What El Salvador’s Adoption Means for Algorand
The price of ALGO, Algorand’s native and governance token, gleaned off Koibanx’s announcement of the partnership to reach a high of $2.44 per coin on September 9, 2021, pointing to the significance of the project. However, beyond the price of its native and governance cryptocurrency, Algorand has lots of other benefits to gain from El Salvador’s adoption, including greater adoption of ALGO.
Algorand’s strides in the DeFi space are commendable. It has projected itself as a rival to Ethereum and Solana. Currently, the total value locked (TVL) within the Algorand ecosystem is nearing $90 million, an indication of the recent surge in DeFi activities such as staking, liquidity mining and lending, including insurance. El Salvador’s adoption points to widespread usage of the blockchain, which may also encourage other countries just making an entrance into the crypto ecosystem to adopt Algorand for several initiatives, including CBDCs. As the world’s first open-source and permissionless blockchain, Algorand is poised to be the game-changer for blockchains and DeFi protocols.
Blockchain technology has proven to be one of the greatest innovations in recent history. In recent times, the world has come to realise the numerous potential applications of the technology apart from its role as a pivot for cryptocurrencies.
El Salvador’s partnership with the leading blockchain and asset tokenisation firm in Latin America, Koibanx, is aimed at unveiling one of these applications. The partnership has boosted El Salvador’s crypto adoption and Algorand’s portfolio.