Published on June 28th, 2021 | by Bibhuranjan

El Salvador Passes Law That Makes Bitcoin Legal Tender

Amidst all of the bad rep surrounding cryptocurrencies that followed the recent Bitcoin crash, there’s one glimmer of hope. The small South American country of El Salvador announced that it would be passing a bill that will set Bitcoin as legal tender.

It only took a couple of days for the country to go from announcement to actually pass the law. Today, El Salvador is the first country where Bitcoin is considered legal tender. This news spurred a plethora of good news for cryptocurrencies, with many neighboring countries considering copying El Salvador in this regard.

What is Bitcoin?

Bitcoin is the original cryptocurrency. It was launched in early 2009, by the mysterious Satoshi Nakamoto with the goal to provide financial freedom to everyone in the world.

The creator of Bitcoin thought that our monetary system depended too much on banks and governments. As a solution, he imagined a peer-to-peer payment network, where the coins could be created by a mathematical process called mining, instead of a central authority like a central bank.

Furthermore, he created it as deflationary, as in there is a limited amount of Bitcoins that will ever come to existence, 21 million BTC to be precise.

Bitcoin and other cryptocurrencies have numerous advantages over FIAT money, including:

Decentralized – this means that the creation of bitcoin and its usage is not dependent on any central authority. As a result, anyone can use the network without permission and no one can shut it down.
Cheap and fast transactions – compared to banks, bitcoin transactions are fast and cheap. This is especially true for international money transfers, where fees can reach exorbitant amounts and where it can take days before a FIAT transfer is completed.
Great store of value – many criticize Bitcoin for its volatility, and this is true in the short term. This volatility has given bitcoin the ability to create various financial products like options contracts on Bitlevex. However, since its inception, Bitcoin’s price has increased by 1 million %, making it one of the best-performing assets of the past decade.

These benefits have pushed a small country like El Salvador to consider and adopt Bitcoin as legal tender.

El Salvador’s reasons for adopting Bitcoin

El Salvador’s economy relies heavily on money from abroad. More than 2 million Salvadorans live in other countries and send money to their relatives using remittances.

The money sent to El Salvador from abroad amounts to over $4 billion each year, making up for 20% of the country’s GDP. Considering how high are international banking fees, the move is understandable.

Furthermore, many people in the country do not have access to proper financial and banking services. Bitcoin will allow these people to participate in the growing internet economy, as well as be able to purchase and sell goods for Bitcoin.

While the implication might seem superficial at first, it is anything but. El Salvador puts itself in a position of strength for international commerce as well. Countries that are willing to trade in Bitcoin will be able to enjoy the low remittances and almost instant money transfers of the crypto network.

What does “legal tender” mean?

The country making Bitcoin legal tender means that merchants and banks will have to recognize it as a satisfactory payment for any monetary debt. This means that people will be able to pay their mortgage and bills with Bitcoin and use it as a currency for pension funds and healthcare insurance.

Conclusion

While mass adoption was expected down the road. El Salvador accepting Bitcoin as legal tender came as a surprise to many experts in the field. This move could be followed by other countries in the region, starting a new mass adoption revolution in smaller, poorer countries.

Cover Image from NeedPix

Tags: Bitcoin, bitcoin exchange, bitcoin trading

About the Author

Bibhuranjan Editorial Officer, technofaq.org I'm an avid tech enthusiast at heart. I like to mug up on new and exciting developments on science and tech and have a deep love for PC gaming. Other hobbies include writing blog posts, music and DIY projects.