Not long ago, El Salvador announced its plan to accept Bitcoin as legal tender in the country, and on September 7th, 2021, the government will make Bitcoin legal tender, becoming the first country to do so. 

This step was widely appreciated by the crypto community all over the world as it signifies a significant milestone in cryptocurrency’s journey to becoming mainstream. Moreover, it will help the cryptocurrency recuperate after its long fall since the exodus of Chinese miners. However, the most significant effect of Bitcoin becoming legal tender will be felt by the country itself. 

To understand the effects of Bitcoin becoming a legal tender, let’s first understand what a legal tender is.

What does it mean for Bitcoin to become a Legal Tender?

Legal Tender refers to money, generally fiat currencies such as banknotes and coins issued by the country itself. Every legal tender is an accepted mode of transaction for all businesses. However, it does not mean that every business must accept Bitcoin once it becomes legal tender. It simply means that the shopper can make payments using Bitcoin legally if the merchant store accepts it as a payment mode. 

While making transactions using Bitcoin wasn’t illegal before, they were not accepted by the federal government in El Salvador and did not come under any federal laws. However, after September 7th, every digital currency user can transact using Bitcoin legally. But Bitcoin can explicitly be used to repay a debt owed to creditors, which is a significant win for the cryptocurrency. 

Why did El Salvador make Bitcoin a Legal Tender?

El Salvador made this decision of accepting Bitcoin as a legal tender in the hopes of boosting its economy. It’s no secret that the country’s economy has been hanging from a thin thread and by opening up its doors to Bitcoin, El Salvador hopes to rope in investments from crypto traders. 

El Salvador’s president Bukele believes cryptocurrencies have a massive potential of revamping the country’s economy. To that extent, Bukele will create a state-run geothermal utility mining farming that will utilize energy from the country’s volcanoes. This mining farm will run on renewable energy sources and will not have any large carbon footprint making it an ideal place to mine Bitcoin. 

Moreover, to promote the use of Bitcoin, El Salvador announced free Bitcoin worth $30 for those who sign up for its national digital wallet called Chivo. Also, foreigners who invest three Bitcoins in the wallet will be granted residency. Apart from that, El Salvador has also been installing over 200 Bitcoin ATMs across the country to help users easily convert Bitcoin to cash. 

However, considering the indebted government and the low percentage of the bank-owning population in El Salvador, Bitcoin adoption on a large scale will be slow. But on the plus side, other countries such as Panama are following suit and making cryptocurrencies a legal tender in the country. Apart from that countries such as Paraguay, Venezuela and Anguila rank the highest in Coinmarketcap’s list of next country to accept Bitcoin as legal tender. 

Regardless of the slow growth, Bitcoin becoming a legal tender is an outstanding achievement and marks the acceptance of cryptocurrencies in the traditional financial system. While the change is slow and gradual, the time is not far when cryptocurrencies payments become as mainstream as VISA card payments.