El Salvador officially adopted bitcoin as legal tender this month, becoming the first nation to do so. However, that landmark came at a price. Technical glitches and street protests from sceptics hampered the launch in El Salvador. And on the global markets, bitcoin suffered its heaviest losses in two months.
The reasons behind the move from one of Central America’s poorest nations are bold and laudable. On the day of the rollout, President Nayib Bukele tweeted: “We must break the paradigms of the past.” Unfortunately, the only things that broke were the servers that could not keep up with user registrations.
These birthing pains will presumably be overcome but the story does highlight the dangers of making radical changes to the financial system without ensuring the underlying infrastructure is fit for purpose. Tokenisation and digital assets have the potential to change fund management beyond recognition, democratising the investment world. But none of the benefits will be realised without supporting regulation and infrastructure.
We have been here before. Time after time, the front office develops new vehicles and the back office races to catch up. In the meantime, the potential for chaos looms large. As we move towards a digital market, this potential has never been greater.
Nicholas Pratt, Technology & Operations Editor
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