Bitcoin became legal tender in El Salvador, and this is a great step forward for Cryptocurrency market.
Bitcoin becomes legal tender. Table of Contents
Bitcoin will be legal tender in El Salvador. On June 9, the Legislative Assembly of the Central American country approved with 62 of 84 votes the bill in which Bitcoin joins the US dollar as a new legal tender. This law will come into force in the month of September and it has already become a great historical milestone for Bitcoin. Let’s see a little more in detail what this means for the future of this cryptocurrency.
Salvadoran President Nayib Bukele has become a celebrity in the crypto (and financial) world after pushing this proposal before Congress and getting its approval. At 40, his name has already appeared in newspapers around the world and on Twitter, he already has 2.7 million followers. And is not for less. Let’s see why a niche has already been earned in the history of Bitcoin.
Historical event – Bitcoin Legal Tender
It has been 13 years since the publication of the Bitcoin White Paper in 2008. Since then we have seen the evolution of its use cases, where some see Bitcoin as a store of value and a refuge against inflation, others as a means of payment and The reality is that Bitcoin currently serves both purposes.
By becoming its new legal tender, the use case for El Salvador has more to do with the means of payment. This means that Salvadorans who wish to can pay their taxes in BTC, will be able to use it as a reference in the price of products and services and they will not have to pay for the profits obtained in operations with Bitcoin.
How does this affect the daily life of the citizens of El Salvador? Well, very easy, they can go to any store and see the price of, for example, a pair of shoes in BTC and pay with BTC or dollars.
Currently, we can make purchases around the world with cards associated with digital assets, such as our Bitpanda Card, with which you can sell the asset of your choice for the value of the item in euros, for example. When a Salvadoran uses Bitcoin to buy, he will not be selling his investment, he will simply be paying with BTC.
The challenge of digitization
The biggest challenge Nayib faces, and one for which many still consider the new law an experiment, is that close to 70% of Salvadorans do not have a bank account. Until now, to be able to pay with a bank card, it was also necessary to have an open account at a bank. How will a country in which the vast majority continue to pay with cash adopt a cryptocurrency?
The answer may lie in the question itself. Cryptocurrencies do not require a bank account, only a digital wallet that can be used, for example, from any current smartphone. For this reason, the Government of Nayib has launched the Chivo app, which includes a wallet with which it is possible to carry out transactions with BTC and the exchange of BTC / Dollars, and without commissions. To encourage the use of the Government app, citizens of El Salvador will receive $ 30 worth of BTC totally free. In addition, Nayib clarified that it will not be mandatory to use the Chivo app, any wallet is welcome, they simply want to facilitate access to Bitcoin from the Government. In addition, the executive explained that they not only want to teach their citizens to use Bitcoin, but they also intend to support, for example, small businesses that do not have the necessary technological equipment. Only time will tell if these promises are kept.
Domino effect for the better future
Paraguay, Panama, and Argentina are also exploring ways for Bitcoin to be considered a state-recognized currency. The strong inflation that Latin American countries are experiencing is causing their leaders to look for ways to maintain the purchasing power of their citizens. And cryptocurrencies, and Bitcoin in particular, could be the answer.
The other side of the coin
While we see that several Latin American countries are approaching Bitcoin, which we remember does not have a central authority and is open source, others are dedicated to hindering it. China, for example, has been showing its aversion to Bitcoin for years: from a ban on offering services related to cryptocurrencies to preventing mining within its territory. Why? Instead of Bitcoin, China wants to promote its own CBDC(Central Bank Digital Currency): the digital Yuan. And while it is not directly targeting Bitcoin, the European Central Bank is also increasingly speaking out on its plans to launch the digital Euro. Stablecoins (stable coins that do not fluctuate), with projects like Diem, will also play an important role and could compete for users along with Bitcoin, CBDCs, and, who knows if cash itself.
Could a European country adopt Bitcoin like El Salvador?
There is currently no clear standard to serve as a reference. Each member country is legislating according to its own criteria and this leads in many cases to confusion. In fact, depending on the country in which you have tax obligations, you will have to pay different commissions when obtaining profits in the sale of cryptocurrencies, since they are currently taxed as a financial asset, as if they were shares, for example.
To unify these positions, MiCA (Markets in Crypto-assets) is the response proposed by the European Union to regulate and bring criteria closer together. The MiCA document is expected to be ready by 2024.
As we can see, we are still in the early stages of the adoption of cryptocurrencies, even the most important in the market such as Bitcoin. El Salvador will be the first real case example that tells us how a decentralized cryptocurrency works as legal tender. Which country will be the next to promote a Bitcoin Law?