Bitcoin is a virtual currency that has been around since 2008, and there’s a lot of hype around it. Since the value of Bitcoin has been rising rapidly, many people have been asking what it is, what it’s used for, and what it can possibly be used for in the future. What will Bitcoin be used for? How will Bitcoin change the world? Most importantly, how are we going to pay for all the things we buy?
Bitcoin is one of the most popular cryptocurrencies that is being traded online. It is also one of the most controversial. The reason behind its popularity is its lack of government control, which makes it a desirable asset for many users. It is also a highly volatile asset which can cause a lot of confusion and confusion. If you are confused on the subject, we have compiled a list of FAQs to answer your queries.
When you hear the phrase “legal tender”, what do you think? How about “currency”, or “currency that is equal to the value of its images”.. Read more about bitcoin legal tender and let us know what you think.
Bitcoin (BTC) has been seen primarily as a speculative financial instrument for most of its existence, but El Salvador’s sudden decision to allow BTC as legal tender is a reminder that cryptocurrencies can play a role in improving the lot of the world’s least affluent citizens.
In early June, two surprising facts appeared on the world stage: First, 70% of the Salvadoran population does not have a bank account, and second, remittances – money sent abroad by workers – are the engine of the country’s economy, accounting for 23% of GDP.
In this regard, Chainalysis was prescient when he described the problem of remittances around the world on his blog last year, perhaps even anticipating measures like El Salvador’s: Given the importance of remittances in the region, one would expect such activity in Latin America.
President Nayib Bukele of El Salvador said that thanks to the new law, bitcoin will have 10 million potential new users in El Salvador, adding that bitcoin is the fastest-growing method of transferring money, with $6 billion per year.
However, the new law has been met with skepticism by some economists, who have deemed it unworkable. Steve Hanke of Johns Hopkins University went so far as to say that it could cause the complete collapse of the [El Salvador] economy.
But in the cryptocurrency and blockchain community, the move has been greeted with approval. Sergey Nazarov, co-founder of Chainlink, commented to Cointelegraph: The legalization of bitcoin as a national currency is a uniquely important event in the history of money, society and globalization. Vladimir van der Laan, developer and maintainer of bitcoin core, told Cointelegraph that El Salvador’s action is an absolutely significant step, as it is something that has never been attempted before. I hope it’s for the best.
Eloisa Cadenas, co-founder of PXO Token, a Steblecoin linked to the Mexican peso, also stressed the importance of the new law. This marks a different view of bitcoin and the crypto industry. Throughout most of its history, bitcoin has been plagued by the idea that it was primarily used to launder money or commit fraud, and relatively little has been said about its positive qualities, he told Cointelegraph. But that’s where Bitcoin helps the people who really need it.
But making bitcoin legal tender – meaning it can be used to pay taxes, settle debts and buy goods in stores – comes with risks. Eswar Prasad, professor of economics at Cornell University and senior fellow at the Brookings Institution, told Cointelegraph:
Relying on cryptocurrencies, with their volatile values and high transaction costs, as a government-sanctioned medium of exchange seems like an act of desperation. A stubblecoin with a major reserve currency would be a better option for a country whose currency and central bank cannot be trusted.
Prasad did not rule out all blockchain-related solutions for cross-border payments. He acknowledged that new financial technologies that promise to reduce the costs and limitations of international payments will certainly be a boon for poor countries that rely on remittances from their citizens working abroad, including blockchain technology and its variants, but decentralized cryptocurrencies like bitcoin are unlikely to become the primary vehicles for cheap, fast and efficient cross-border financial transfers.
What is legal tender?
Legal tender is a somewhat archaic term that is often misunderstood and can have different meanings in different parts of the world. In the United States and the United Kingdom, for example, retailers are not legally required to accept legal tender – the dollar and the pound sterling, respectively – but retailers in El Salvador are required under the new law to accept BTC as payment. As President Bukele stated, as reported by Reuters:
If you go to McDonald’s or whatever, they can’t tell you they won’t accept your bitcoin, they are required by law to accept it because it is legal tender.
Legal tender essentially means that the government has declared the type of currency taxable and that it is legal to use that currency in contracts and to designate goods and services in it, Franklin Noll, a monetary historian and president of Noll Historical Consulting, told Cointelegraph.
A country usually adopts a foreign currency as legal tender for three reasons, Noll continued: The value of the national currency is too volatile, there is a shortage of national currency, or the national currency is useless in transactions or foreign trade.
But El Salvador has no currency of its own and is dollarized – meaning it uses the U.S. dollar for all transactions – so currency volatility or foreign trade is not a problem. This indicates that the problem is a lack of cash and poor banking structure in the country, Noll said, adding further:
Salvadorans have probably been attracted to bitcoin for a while, as an alternative currency to compensate for the lack of cash/electronic money while allowing for cheaper money transfers. I must stress that I am not sure.
Is volatility always a problem?
But bitcoin is notoriously unstable, which can cause problems. People don’t want to spend BTC when the price goes up, and retailers don’t want to accept bitcoin when the price goes down. This is why economist John Hawkins argued in The Conversation that recognizing bitcoin as legal tender could destabilize El Salvador’s economy: It would have been easier if El Salvador had introduced the Stablcoin, which costs one US dollar.
Finding an acceptable exchange rate can also be tricky, Alistair Milne, a cryptoskeptic (not to be confused with Alistair Milne, a bitcoin evangelist living in Atlanta, Georgia) and professor of finance at Loughborough University, told Cointelegraph.
Until the law imposes a specific exchange rate against the U.S. dollar, Milne said, companies will protect themselves from the risks of BTC adoption by setting a previously unfavorable exchange rate. […] So technically they accept BTC, but no one will actually pay for BTC.
But if the law requires a particular exchange rate, such as. B. the average exchange rate over a period of, say, 10 minutes prior to the transaction, which can be retrieved from many standard cryptocurrency sites, with the cost and risk of the exchange then being borne by the companies receiving the BTC – although this may be of interest to those receiving BTC as a money transfer from overseas. Milne continued:
Ultimately, even if the law goes into effect with a buyer-friendly exchange rate, I doubt there will be many transactions in El Salvador in BTC.
Which country could be next?
El Salvador is one of the few countries without its own sovereign currency, so it has less to lose by making BTC legal tender without losing seigniorage – the profit the government makes from issuing the currency, for example. It may not have many supporters, but Nigel Green, CEO and founder of the deVere Group, disagrees. If El Salvador has been a pioneer, we can hope that other developing countries will follow. Indeed, low-income countries have long suffered from a weak currency that is extremely vulnerable to market movements, causing inflation to run wild, he said in a press release on 9. June.
Will the others follow? Without a doubt, Cadenas replied, especially those with emerging economies, although they will probably wait for the first results from El Salvador. Nigeria could be next, although he would also like to see Mexico, his home country, adopt a similar approach because of the volume of remittances to the country.
If the share of remittances in GDP were the only criterion, Honduras could also be a candidate. As in El Salvador, remittances exceeded 20 percent of gross national product in 2019, one of the highest percentages in the world, according to Pew Research. By comparison, Mexico’s share of GDP is only 3%, but its gross revenue is high: $42.9 billion by 2020, the second largest share according to the World Bank, after China and India. Most remittances from Latin America come from the United States.
However, Mr Prasad showed disdain for other countries that will soon follow suit: It is unlikely that the introduction of bitcoin in El Salvador will trigger a wave of acceptance of the crypto currency as a national legal tender in other countries. The drawbacks and inefficiencies of decentralized cryptocurrencies are too great for them to be a viable substitute for fiat currencies issued by central banks.
While Noll doubts many other countries will accept bitcoin as legal tender, he believes the crypto currency has opened up many opportunities for smaller countries to implement their own currency programs if needed. As examples, he cited the Bahamas’ Sand Dollar – the world’s first digital central bank currency – and the Marshall Islands’ blockchain-based SOV currency. He added:
There is no reason why a country cannot create its own legitimate means of payment or adopt an existing one. Therefore, I would consider the introduction of bitcoin in El Salvador to be part of a trend rather than a milestone.
Bitcoin more widespread in the world?
As mentioned, El Salvador’s president has predicted that bitcoin could gain 10 million new users as a result of the law – assuming that Salvadorans working abroad are added to his country’s 6.5 million population.
According to a February 2021 report by Crypto.com, there are 71 million bitcoin users out of 106 million crypto currency users worldwide, which is a 14% increase in bitcoin adoption in one Central American country alone. What will happen if other Latin American countries, including Mexico, follow suit with remittances? Will the use of cryptocurrencies increase dramatically?
Related: Adopt a standard for bitcoin? Salvador’s going down in the history books.
That’s the view of Chainlink’s Nazarov, who told Cointelegraph: Just as emerging markets have moved from landlines to mobile phones, I believe the new internet connectivity in these markets, combined with the inherent capabilities of bitcoin, DeFi and smart contracts, makes them an ideal place for widespread global adoption. This is just the beginning of the adoption of Bitcoin, DeFi and Smart Contracts in emerging markets. If the benefits of this historic decision are confirmed, other countries will follow El Salvador’s example, he concluded.
Cadenas told Cointelegraph that bitcoin is becoming a mainstream asset used by all socio-economic levels, not just the rich:
It’s great to see bitcoin helping people who really need it, promoting financial inclusion, and not just bringing money into the corporate coffers.The Bitcoin network is quickly becoming an accepted form of currency in many countries. As more retailers and services accept Bitcoin as a payment method, it will become more and more a part of our daily lives. As more people begin to use Bitcoin as a means of payment, it will also attract attention from regulators. As a result, Bitcoin may have to undergo some changes before it can achieve widespread adoption as a legal tender.. Read more about jack mallers and let us know what you think.
Frequently Asked Questions
Is Bitcoin a legal tender?
Bitcoin is not legal tender in any jurisdiction. What is the most recent Bitcoin block? The most recent Bitcoin block is block 479,823. What is the maximum number of Bitcoins that can be created? The maximum number of Bitcoins that can be created is 21 million. Can you buy anything with Bitcoin? Yes. You can buy a variety of things with Bitcoin. How many Bitcoins are currently in circulation? There are approximately
Can you get in trouble for buying Bitcoin?
Bitcoin is not regulated by the government, so it is not illegal to buy or sell them. Can you lose money buying Bitcoin? In theory, you can lose money by buying Bitcoin. In practice, the value of Bitcoin has been very volatile. It can be worth a lot one moment, only to crash the next. Can you make money buying Bitcoin? In theory, you can make money by buying Bitcoin. In practice, the value of Bitcoin has been very volatile. It
What are the negatives of Bitcoin?
Bitcoin is not a stable currency. Bitcoin has a high energy cost. Bitcoin is not a widely accepted currency. What are the positives of Bitcoin? Bitcoin is a decentralized currency. Bitcoin is not subject to inflation. Bitcoin is not subject to manipulation by a central bank. Bitcoin is a secure currency.
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