Bitcoin as a legal tender – what we’ve learned so far

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Bitcoin was once thought to be a revolutionary alternative to fiat money that would disrupt the traditional financial system. 15 years after its birth, Bitcoin and the slew of altcoins that emerged in its wake are predominantly used as a trading and investment mechanism and less as a payment method. Investing in crypto is also easier than ever before, with plenty of guides on how to buy Bitcoin breaking down every step of the process.

Although its popularity increased considerably over the years in keeping with its ongoing price rise, Bitcoin is still a long way from being embraced as a mainstream form of payment. Its legality varies substantially from one country to another, ranging from relative acceptance, as is the case in most developed economies, to complete prohibition in countries like China, Egypt, or Morocco.

Even in jurisdictions where Bitcoin is legally accepted, it still doesn’t enjoy the same status as government-backed currencies, with only two exceptions: El Salvador and the Central African Republic (CAR). These two nations have already grated Bitcoin the legal tender rank and several others seem to be interested in following down the same path in the future.

Trailblazers in cryptocurrency adoption

It hasn’t been that long since Bitcoin became a legal tender for the first time, which is not in the least surprising given that the digital asset has a rather short history spanning only 15 years. But it’s been enough to gain some valuable insights and lessons in this respect.

In 2021, El Salvador broke the ice by becoming the first nation to recognize Bitcoin as an official national currency alongside the U.S. dollar. Ensuring greater financial inclusion, enhancing investment opportunities and fostering innovation and economic development were the main arguments that Nayib Bukele, El Salvador’s president, put forward for this historical decision.

Local authorities partnered up with several major companies like Bitso, Silvergate Bank and Athena Bitcoin to build a viable crypto infrastructure by facilitating the creation of official Bitcoin wallets known as Chivo and crypto ATMs. This allowed locals to conduct Bitcoin transactions quickly, effortlessly and free of fees.

In 2022, the Central African Republic, one of the poorest countries in the world with almost 70% of its population being affected by extreme poverty, took a page from El Salvador’s book and proceeded to recognize Bitcoin as an official medium of exchange. The purpose was to tokenize the country’s natural resources as part of a master plan known as Project Sango.

Unfortunately, Bitcoin’s stint in the local economy ended rather abruptly one year later when officials reversed their decision. The Banking Commission of Central Africa (COBAC) ban on crypto, a 90% lack of internet access among the population, mistrust and low levels of crypto literacy were the main factors that led to the project being rejected.

Is the official adoption of Bitcoin a good idea?

Both El Salvador and the CAR wanted to take advantage of Bitcoin’s capabilities to address many of the economic issues they were struggling with, namely low growth rate, inequality in the distribution of income, poor financial inclusion, and inflation. In CAR’s case, using Bitcoin alongside the CFA Franc would help them reduce their dependency on France which holds 50% of their foreign exchange reserves.

From an economic standpoint, these two countries had solid reasons to make Bitcoin a legal tender, but their experiences highlight several challenges in this respect. The biggest hurdle in integrating Bitcoin into the local financial ecosystem was represented by the lack of adequate infrastructure.

While El Salvador might have a better internet penetration than the CAR, 40% of its

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By: MFM
Title: Bitcoin as a legal tender – what we’ve learned so far
Sourced From: www.mensfashionmagazine.com/bitcoin-as-a-legal-tender-what-weve-learned-so-far?utm_source=rss&utm_medium=rss&utm_campaign=bitcoin-as-a-legal-tender-what-weve-learned-so-far
Published Date: Thu, 09 May 2024 14:05:07 +0000