El Salvador Adopts Bitcoin as Legal Currency & What That Means for USA
First Country to Use Crypto Currency as Legal Tender
El Salvador has been making waves as the first country ever to adopt Bitcoin, or any cryptocurrency for that matter, as a valid national form of payment.
Last week, a supermajority voted to officially make Bitcoin legal tender, in response to President Nayib Bukele’s novel proposal. US dollars will still be used as well, even after the official adoption date of Bitcoin.
El Salvador does not have its own currency but uses the US dollar. It is a common practice for US dollars to be wired into the country from those working abroad, which can get expensive.
But now in less than 90 days, Bitcoin can be used to pay taxes and to purchase any item or service within the country. To encourage citizens to begin using Bitcoin, there will not be a capital gains tax on transactions, which is a hurdle that must be overcome for wide-spread adoption of the practice.
According to his tweets, Bukele believes that Bitcoin “will bring financial inclusion, investment, tourism, innovation and economic development” to El Salvador.
In order to address the issue of Bitcoin mining operations consuming excessive amounts of energy, Bukele has enlisted the aid of state-owned geothermal electric company LaGeo.
The main mission is to create a plan that proposes feasible ways to use renewable energy from the country’s volcanoes to offer and operate Bitcoin mining facilities.
This plan to use the energy of volcanoes would help put to rest any lingering concerns over any alleged contribution to climate change from the mining of crypto currencies.
Bukele’s hope is that Bitcoin mining facilities will make El Salvador a hub for miners and crypto investors in general. He is even prepared to provide citizenship to anyone who has invested in at least three Bitcoin.
All Businesses in El Salvador Must Accept Bitcoin Payments
Naturally, in order for Bitcoin to be practically used as a currency, vendors must have the expertise and infrastructure to accept it in exchange for their goods or services.
Therefore, by law, Bitcoin must be accepted by businesses when it offered as payment.
However, for individuals the use of Bitcoin will still be optional. And in order to mitigate risk, the government will be guaranteeing the convertibility of Bitcoin to US dollars, thanks to a $150 million trust at BANDESAL, a development bank.
This order includes all businesses operating within El Salvador, whether they are headquartered there or not.
How This Could Affect the USA and Other Countries
Any American businesses and franchises that operate within El Salvador will also have to develop the capability to accept Bitcoin as a form of payment, or else endure fines or charges, or pack up entirely.
This could be a major turning point for America as well. Since American businesses that operate in EL Salvador will have to develop these crypto currency capabilities anyways, what is to prevent them from implementing those tactics in other countries, such as the USA, as well?
It could be that once a McDonalds in El Salvador begins accepting Bitcoin as payment, some McDonalds in the States could start accepting Bitcoin as well.
Of course, there are still numerous obstacles to overcome before that can become a reality, such as the slow processing time of transactions on the Bitcoin blockchain, as well as the lack of infrastructure and laws in the US for the governance of such actions.
For this to also be implemented in the US, Bitcoin transactions should not be subjected to a 40% or higher capital gains tax on each purchase.
Either way, the potential of Bitcoin and cryptocurrencies in general has surely taken another step forward.