El Salvador, The World's First Country That Makes Bitcoin A Legal Tender

Bitcoin, the most popular cryptocurrency, is still receiving mixed reviews and reputations.

While a number of countries have started to see the benefit of having a cryptocurrency, none has been using Bitcoin as a legal payment.

That until El Salvador, a country in Central America.

The nation with more than 6 million people becomes the first in the world to formally adopt the cryptocurrency as legal tender.

This happens after its Congress approved President Nayib Bukele’s proposal to embrace the cryptocurrency, with 62 out of 84 possible votes.

Another way of saying it, Bitcoin should be accepted by firms in El Salvador when offered as payment for goods and services. Tax contributions can also be paid in the cryptocurrency.

"If you go to a McDonald's or whatever, they cannot say we're not going to take your bitcoin, they have to take it by law because it's a legal tender," Bukele said in an online conversation.

"It will bring financial inclusion, investment, tourism, innovation and economic development for our country," Bukele said in a tweet shortly before the vote in Congress.

Following the Congress' approval, Bukele instructed state-owned geothermal electric firm LaGeo to develop a plan to offer Bitcoin mining facilities using renewable energy from the country's volcanoes.

The idea, according to the President, is to build Bitcoin mining hubs around the country's geothermal potential.

And to entice others, Bukele said that El Salvador would offer citizenship to whoever showed evidence they had invested in at least three Bitcoins.

As for the use, Bukele said that it's up to the individuals themselves, as long as they don't bring risks to other users.

The government is even guaranteeing convertibility to dollars at the time of transaction, through a $150 million trust created at the country's development bank BANDESAL.

Many people in El Salvador rely heavily on money sent back from workers abroad.

By accepting Bitcoin as a legal payment, El Salvador can start offering a quick and cheap way to send money across nations, without relying on remittance firms typically used for international transactions.

At this time, remittances are delivered by money transfer services which are necessarily centralized and highly regulated. Sending funds can be complicated, involving an in-person visit and proof of identity for both the sender and receiver. While there are plenty of money transfer services in the country, many people across El Salvador are still living in rural areas, making the process less convenience.

World Bank data showed remittances to the country made up nearly $6 billion or around a fifth of GDP in 2019, one of the highest ratios in the world.

What's more, in El Salvador, some 70% of its citizens are unbanked, meaning that they lack access to a basic bank account.

This is why Bukele touted the cryptocurrency’s potential as a remittance currency for Salvadorans overseas, while saying that the U.S. dollar shall continue as legal tender.

In practice, El Salvador does not have its own currency.

In the capital, San Salvador, reactions were mixed, with some excited that the new currency could increase prosperity and financial options.

Others however, were skeptical.

Cryptocurrency supporters hailed the move as legitimizing the emerging asset, but financial regulators and policymakers warn that accepting Bitcoin has a legal payment has the potential of opening more ways for money laundering and other illicit uses.