7 months ago

El Salvador is the first country to accept Bitcoin as legal tender: What does this mean?

Update June 9 2021

There have been a lot of events and revelation in the year 2021 and this weekend one of the most exciting moments happened in Bitcoins history. El Salvador is the first country that has passed a bill that makes Bitcoin a legal tender in the Latin-American country.

Why is this so important and how will this effect Bitcoin in the long run?

Banking the unbanked in El Salvador

El Salvador is still suffering from the late consequences of the civil war that was raging from 1979 to 1992. Most people rely on cash and the nation has no own currency, but instead uses the US-Dollar as legal tender. With 70 % of the population not having access to banking, the country lacks a financial infrastructure that enables its citizens to gain control over their economic lives.

By making Bitcoin a legal tender alongside the US-Dollar, El Salvador faces a real chance to change the situation of 6 million citizens. With almost 2 million Salvadorians living abroad, sending money back home to their families, they can now cut out intermediaries and improve their lives using Bitcoin as the new monetary standard.

How will that change Bitcoin?

Bitcoin remains the strong and rock-solid technology and will not go through changes. But the situation of Bitcoin will drastically change. El Salvador is a small country and economically insignificant, but accepting Bitcoin as legal tender makes it a show case for nationwide adoption.

There are also legal implications. Most countries acknowledge Bitcoin as commodity, but not as legal tender. Therefore, spending BTC has tax implications that are highly unusual for a currency. The countries in question might have to change their stance at some point in the future. There is a chance that El Salvador could pave the way for more countries to adopt the Bitcoin standard. What we are looking at is the possibility that a domino effect is set in motion.

Bitcoin to the moon?

Not quite yet. The market reacted neutral to the big news. El Salvador is small country and wont add to much money that will be flowing into the market. Most traders are more likely to react if institutional investors are creating massive inflow.

The fact that El Salvador is choosing this path is more a strategic long-term goal for Bitcoins revolution rather than an attempt to increase the market cap.

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