Bitcoin was released in 2009 by Satoshi Nakamoto, and since that time, it has become a game-changer for the financial landscape, as it reduces the influence of banks and governments. This is the main reason why people, investors, and companies want to buy Bitcoin online. The original goal of Bitcoin was to be used for everyday payments, and although individuals have started to utilize it for that purpose, we still need to wait a long way until Bitcoin has widespread adoption.
If Bitcoin would have mainstream acceptance, then the crypto king could also be adopted as legal tender. Around the world, not many countries have accepted Bitcoin as a legal tender, but things have slowly changed. El Salvador is the first country to do this, and with this fact, it can open the doors to other numerous possibilities. In this article, we will explore the pros and cons of accepting and recognizing Bitcoin as a legal currency.
What is a legal tender?
A legal tender is a form of payment that a specific country’s government accepts for taxes, business dues, and public or private charges. However, even if an asset is considered legal tender, this doesn’t necessarily mean citizens can exchange it for local services and goods, which happens with banknotes and coins. This factor depends on the general characteristics of a country, as each has its own rules and legislation. In the case of El Salvador, the government stopped using its national currency back in 2001 and opted for the US dollar. But things have changed again, and El Salvador has adopted Bitcoin as a legal tender, meaning that commercial services and debt settlement must accept legal tender transactions, where all the merchants have to comply and accept Bitcoin as a form of payment.
The Pros of accepting Bitcoin as legal tender
Censorship-resistant advantage
No one can deny that decentralization is indeed one of the most interesting features of the Bitcoin blockchain. Bitcoin uses a peer-to-peer (P2P) model to allow intermediate-free payments. This is why Bitcoin doesn’t require the involvement of central authorities or other third parties. Instead, in crypto transactions, users can make a payment directly by using their wallet and waiting for the other participants to validate it. As a single entity does not govern the validation process, it becomes impossible to reverse or censor transactions.
This process completely differs from the conventional payment solutions offered by banks, where they control the whole process. Additionally, banks have the right to restrict a region or an individual from accessing specific services, and they can also reverse payments. Instead, Bitcoin doesn’t present any restrictions since it is decentralized. This is why accepting Bitcoin as a legal tender is a safe alternative, as it lets users participate in the financial landscape without involving payment restrictions in this process.
Bitcoin is a fast cryptocurrency
Bitcoin is the best alternative for cross-border payments, as it is much cheaper and faster to pay with BTC for international transactions because crypto doesn’t need to go through a bureaucratic system where intermediaries handle the transactions. Bitcoin is a P2P network, which means that the transactions are almost instantaneous, making Bitcoin an affordable channel for remitting funds and making cross-border payments.
BTC has an anti-inflationary system
Bitcoin has a supply of 21 million BTC, and miners will no longer validate new transactions after that amount is reached, which offers Bitcoin a great anti-inflationary advantage. This benefit also improves with the block reward halving system, in which the number of BTC minted is halved every four years. Because of these two features, the value of Bitcoin maintains an upward trajectory. This isn’t the case with traditional payment systems, where governments and banks can print more fiat money and trigger inflation in this way.
The Cons of accepting Bitcoin as legal tender
Has regulatory uncertainties
One of the most notable disadvantages of accepting Bitcoin as legal tender is the regulatory uncertainties that surround it. This is why keeping track of the Bitcoin legislation before accepting it as legal tender is essential. For a country to accept Bitcoin as legal tender, it needs a robust crypto tax system and reasonable regulations so that the governments can track the crypto payments and citizens pay the taxes associated with Bitcoin transactions. Fiat transactions are quite easy to tax, but this doesn’t happen with Bitcoin activities, where users have non-custodial wallets.
Price volatility
Another substantial disadvantage of Bitcoin is its high volatility, which makes Bitcoin’s price unstable. Price volatility is why countries fear accepting Bitcoin as a legal tender. In general, legal tenders offer a high level of stability, and as this is not the case with Bitcoin, governments are skeptical of accepting it.
This factor has also been a substantial talking point in El Salvador, which made citizens protest against the decision to adopt the crypto pioneer as a legal tender. Salvadorans were afraid of the volatility of Bitcoin and didn’t know how it could impact their earnings. However, experts believe that the volatile nature of Bitcoin is a two-edged sword, as it can also boost the value of earnings for companies, merchants, or individuals who accept digital assets as legal tenders.
The bottom line
The first cryptocurrency ever created has opened the door to many possibilities, where people could finally use something unrelated to centralized services. Bitcoin has developed fantastically over the years and has even become a legal tender in El Salvador. However, Bitcoin still has a long way to go before it can benefit from widespread adoption. Making Bitcoin a legal tender presents advantages and disadvantages, and people must consider both aspects before making such an important decision.
