Bitcoin as a legal tender - The next ‘great filter’?

[aizzaku]

Bitcoin as a nation’s legal tender!


Event summary:
On the 9th of June 2021, El Salvador passed the ‘Bitcoin Law’ which states that bitcoin will be regulated as an unrestricted legal tender in the nation. The specifications of the law can be read here.
In a gist, bitcoin now will be one of the official currencies of El Salvador along with the USD.
- Private and businesses can transact in bitcoins freely.
- Taxes & debts can be paid in bitcoins directly.
- Merchants ‘must’ accept bitcoin when offered.
- The government will facilitate the population by means of providing education and infrastructure to convert, store and spend bitcoins.
- Furthermore, the president mentioned quite some interesting points over twitter spaces (potential and not on paper) :
-- Govt. will provide a custodial wallet but not mandatory and thus people are can freely choose to use a non-custodial wallet if they wish. Any Bitcoin/LN wallet.
-- A trust fund that will assume price risk and deposit USD against BTC payments. The fund will hold ~$150M worth BTC but not as a reserve.
-- Permanent residence for anyone who invests 3 BTC in the nation.


The great filter !?

It has been a long journey from being ‘nothing’ to being a nation’s legal tender. Although I am not an expert coder or a core contributor, I have witnessed and contributed in my own stead to the bitcoin ecosystem and thus I do feel like a part of it. This is must be true for many of you out there, and I feel each and everyone is significant as every bit counts in this decentralized systems era!

From my perspective, in the span of 12 years, bitcoin went through several filters to be what it is today. Passing major technical hurdles to achieve software stability, establishing nodes globally to achieve a decentralized network, surviving a million accusations, optimizing the hashing (ASICs) to reach astronomical levels, surviving the hard-forks, 2nd layer implementations, etc. This is but a start and bitcoin will have to survive harsher filters going ahead. 

The news of bitcoin becoming a legal tender made me feel that this is one of those filters that can make or break the whole ecosystem. The coming few years are going to be extremely crucial as bitcoin now needs to perform on a scale. Albeit El Salvador is relatively a smaller nation with ~6-7 million people, it is still a massive challenge. It is a whole new paradigm. Furthermore, this challenge is closely linked with the advancements in higher-layer applications such as the lightning network. The part of passing this filter is also dependent on the stability, performance, and UX of the lightning network. 

On a global level, El Salvador will be closely monitored by all other nations. The bigger economies will see this as an experiment in order to either adopt or shun bitcoin completely. It is both exciting and scary at the same time.


So here is what I think might happen and want to open a discussion with you all. Many of you are from various backgrounds with various studies and it would be interesting to hear your opinion.

I think the developed nations especially the USD printing one will instantly try to ‘FUD’ bitcoin on a global level. They will do everything in their power to make sure that this movement fails hard by locally ‘banning’, heavily regulating, getting to wealthy individuals and establishments to further support USD as a global reserve standard. Europe will follow, as usual. In the meantime, the nations that are mid-way/developing will observe closely w/o taking any drastic steps in or against the movement. IF it is witnessed that because of bitcoin, El Salvador’s economy is improving and becoming less dependent on USD, then the developing countries will slowly adapt and implement regulations in favor of bitcoin. It won’t be just internal but such a movement might encourage talent influx. Imagine all the talent that is leaving the country due to lack of opportunity and corruption starts returning back. This can shift the balance heavily in favor of the developing nations. And finally, nations that are really small might just jump on the hype train w/o much thought already. Hopefully with knowledgeable advisors and manpower to assist or it might harm more than do good.


Thoughts?

[Slow death]

On a global level, El Salvador will be closely monitored by all other nations. The bigger economies will see this as an experiment in order to either adopt or shun bitcoin completely. It is both exciting and scary at the same time.

True, El Salvador has taken a big step, if I'm not wrong Japan also legalized bitcoin, but it's still a drop in the ocean. Countries like the US and European UNION would be decisive if they ever passed a law that would allow clear use of bitcoin anywhere in these countries, they currently allow bitcoin use, but they don't have bitcoin laws and many other countries follow what US and European Union do, if the US legalized bitcoin I think many countries in africa (including my country) would follow the same path. but unfortunately the presidents that the US has had in recent years are not in favor of bitcoin

[aizzaku]

On a global level, El Salvador will be closely monitored by all other nations. The bigger economies will see this as an experiment in order to either adopt or shun bitcoin completely. It is both exciting and scary at the same time.

True, El Salvador has taken a big step, if I'm not wrong Japan also legalized bitcoin, but it's still a drop in the ocean. Countries like the US and European UNION would be decisive if they ever passed a law that would allow clear use of bitcoin anywhere in these countries, they currently allow bitcoin use, but they don't have bitcoin laws and many other countries follow what US and European Union do, if the US legalized bitcoin I think many countries in africa (including my country) would follow the same path. but unfortunately the presidents that the US has had in recent years are not in favor of bitcoin

Bitcoin isn't illegal in most countries but there is a difference in it being included in the law as a legal tender. The implications are different. For example, in the 'Bitcoin Law' by El Salvador, one of the articles states that bitcoin 'must' be accepted if offered by the customer. So if you go to a market and say I want to pay in Bitcoin, they have to accept it. Furthermore, to help the merchant the govt. is going to facilitate so that they can instantly swap BTC for USD at the point of sale.

USA wants USD to be the global reserve because they literally control the supply. I would assume, even in an ideal world, USA will be the last to adopt.

[buwaytress]

Very positive news on recognition and acceptance levels, and don't get me wrong, I think it's pretty awesome too but they got to fix quite a bit over there. Adopted the US dollar as legal tender 20 years ago to try and revive the economy. Hasn't worked and still a source of political dispute even if the backlash has abated. Still not sure the precise reason for Bitcoin but if it serves only to provide assurance that it has a legal place there, good enough.

Can't help thinking it's actual adoption and use by people that needs to come first? No point having it legal if no one's using or spending it there.

[Lucius]

On a global level, El Salvador will be closely monitored by all other nations. The bigger economies will see this as an experiment in order to either adopt or shun bitcoin completely. It is both exciting and scary at the same time.

I can agree with you that El Salvador will be under a special magnifying glass when the BTC becomes legal tender (which will happen in about 90 days), and that the country will serve as an experiment and role model for all other countries that may have considered moving in the same direction. This country is not the only one that has a problem with the national currency (which it doesn't really have because it uses the US dollar), and if it turns out that Bitcoin can effectively serve as a currency, we can expect other countries to introduce BTC as a legal tender.

Countries like the US or GB and certainly China or India will never give up their currencies even in the way that they will add another currency as an alternative - because that would mean they think their currency is not good enough - but I don't think they will prevent other countries to experiment with Bitcoin or any other cryptocurrency. As you say, perhaps this is an opportunity for small nations to become less dependent on others - and if there is little truth in rich countries wanting the progress of less advanced and poor countries, then let them try to do something for themselves.

if I'm not wrong Japan also legalized bitcoin, but it's still a drop in the ocean.

What Japan and Germany did a few years ago is not the same as what El Salvador did - it's something like "Bitcoin is legal in our country" compared to "Bitcoin as a legal tender - which would mean - everyone has to accept it as official currency". More about that can be read here.

[aizzaku]

Very positive news on recognition and acceptance levels, and don't get me wrong, I think it's pretty awesome too but they got to fix quite a bit over there. Adopted the US dollar as legal tender 20 years ago to try and revive the economy. Hasn't worked and still a source of political dispute even if the backlash has abated. Still not sure the precise reason for Bitcoin but if it serves only to provide assurance that it has a legal place there, good enough.

Can't help thinking it's actual adoption and use by people that needs to come first? No point having it legal if no one's using or spending it there.

I get your point. Plus I have no ground experience or authority to comment on the real situation of their economy. Mine is just a bird's eye view based on the information I have read so far.

You should check out this presentation: [El Salvador Becomes The First Country to Declare Bitcoin Legal Tender w/ Jack Mallers of Strike] https://www.youtube.com/watch?v=_59hrgTiRJU

On the usage front, the lightning network might really help with adoption. Hence I also mentioned that

this challenge is closely linked with the advancements in higher-layer applications such as the lightning network. The part of passing this filter is also dependent on the stability, performance, and UX of the lightning network.

[aizzaku]

Countries like the US or GB and certainly China or India will never give up their currencies even in the way that they will add another currency as an alternative - because that would mean they think their currency is not good enough - but I don't think they will prevent other countries to experiment with Bitcoin or any other cryptocurrency. As you say, perhaps this is an opportunity for small nations to become less dependent on others - and if there is little truth in rich countries wanting the progress of less advanced and poor countries, then let them try to do something for themselves.

true, seem that since El Salvador didn't have its own currency the adoption decision might have been somewhat easier. Agree on the point that none of the big countries would willingly undermine their own currency unless they are extremely forwards thinking individuals (which I highly doubt).

I believe China and India are already investigating into an 'official' virtual currency.

What Japan and Germany did a few years ago is not the same as what El Salvador did - it's something like "Bitcoin is legal in our country" compared to "Bitcoin as a legal tender - which would mean - everyone has to accept it as official currency". More about that can be read here.

Good shout. Thanks for the ref.

[Obito]

I don't think that they will do it though, legal tender doesn't mean that it becomes and official currency, meaning that they just consider bitcoin as a way to settle debts legally. Of course, US don't want to reliquish thei currency's status as a reserve currency.

[kryptqnick]

If the merchants must accept Bitcoin, why is the word in single quotation marks? Or is it to signify that they must do it upon request, not in advance?
And if they must accept BTC as payment if someone wants to pay with BTC, will the necessary infrastructure for safe and fast Bitcoin payments be offered? And how to act till the first confirmation comes through, which might take a while?
Also, does it work in the opposite direction? If an employer decides to pay employees in Bitcoin, must they accept their salary in Bitcoin or can they choose to remain paid in USD?
There are many questions like this that arise, and I'm eager to find out how all this turns out in practice.
As for the predictions about the reaction, I think that there won't be official governmental responses from most countries, and they will largely just observe how it goes.

[hatshepsut93]

I also believe that El Salvador's move create some risk for Bitcoin, now that the US and IMF and other organizations started getting worried and looked closely at Bitcoin, but this was a necessary step. I think the chance of a huge negative reaction, like outlawing Bitcoin by some countries, is not that high, they could have done it years ago.

[Lucius]

I believe China and India are already investigating into an 'official' virtual currency.

You probably mean CBDC, and China has gone the furthest on the issue, with several major tests among the general population - so news like this shouldn't surprise anyone -> China’s Xiong’an New Area Begins Using Digital Yuan for Salary Payments

This is just the beginning, because sooner or later all countries will have their CBDC, but it is really nothing more than a digitized fiat and there can be nothing that can suppress Bitcoin as the first and only decentralized currency.

I think the chance of a huge negative reaction, like outlawing Bitcoin by some countries, is not that high, they could have done it years ago.

Of course, they could, but then as now they still think that Bitcoin is not too much of a threat - and realistically it is not if we take the number of current users and the value of all Bitcoins in circulation - especially if we compare it with the values of stock or gold markets. China has long shown its stance on this, now everyone is looking at the US and their reactions - and given their influence on most countries, any of their negative decisions would likely have multiple effects around the world.

[dkbit98]

It's funny to hear some ''experts'' now warning that El Salvador economy may crash now after they introduced Bitcoin as legal tender, as if their economy was thriving before with IMF debt and with control of central banks.
All world economy is basically a sinking Titanic now and Bitcoin is lifeboat to escape this crash, but people keep yelling ''don't go in liefeboat', stay on (sinking) the ship that will never crash''.
Why don't you give people of choice to use several currencies including Bitcoin, and if they are not intelligent enough and they keep using centralized controlled infinite funny money than let them do that.
I am not for Bitcoin to be used as only currency in any country but legal tender is great solution to give people a real choice, especially in time of inflation.