El Salvador officiates Bitcoin as legal tender
Government officials are already looking into Bitcoin mining options backed by geothermal renewable energy.
El Salvador is a small Central American country bordering Honduras and Guatemala with a purchasing price parity adjusted GDP of about $55B. This country becomes a world first, as it has just officially made bitcoin a legal tender.
Legal tender refers to anything that is recognized by law as a means to settle public or private debt or meet a financial obligation such as tax payments, contracts, and legal fines. In other words, legal tender is the legally recognized money within a given political jurisdiction. For example, a country’s national currency is deemed a legal tender in every country. In fact, El Salvador does not have its own currency and instead uses the US dollar as the dominant currency of the country.
On Wednesday 9th of June, congress approved President Nayib Bukele’s proposal to embrace the cryptocurrency as legal tender, a move that no other country has dared to execute yet. Specifically, lawmakers voted favourably with 62 out of 84 possible votes being positive towards the creation of a law to adopt bitcoin, despite concerns regarding the impact on El Salvador’s program with the International Monetary Fund.
Bitcoin’s use as legal tender will initiate in 90 days and the bitcoin-dollar exchange rate will be set by the market. According to Bukele, neither the government nor the Central Bank holds any bitcoin at the moment. This decision is met with extreme enthusiasm by cryptocurrency supporters because it essentially legitimizes Bitcoin. However, the decision’s impact on bitcoin regulation and taxation, as well as adoption by other countries remains uncertain. In any case, there are no signs that any countries are preparing to immediately follow El Salvador’s pioneering strategy.
This turning point follows a series of discussions around the potential benefits of cryptocurrency to the country’s financial inclusion issues. President Bukele had been a supporter of Bitcoin and its potential to help Salvadorans living abroad to send remittances back home. Specifically, he stated that the cryptocurrency will enable financial inclusion, economic development, and investment in the country. Furthermore, the President has stated that citizenship will be offered to those who can demonstrate evidence of having invested in at least three Bitcoins (3 BTC).
The use of Bitcoin will be deemed optional for individuals and Bukele supports that it will not bring risks to users. He also stated that the government will guarantee convertibility to US dollars at the time of transaction through a $150mln trust created at El Salvador’s development bank BANDESAL. Additionally, firms are now required by law to accept bitcoin when offered as payment for goods or services. Similarly, it will also be possible for tax contributions to be paid in Bitcoin.
El Salvador: A new Bitcoin Mining hub?
Simultaneously, the president is rapidly pursuing the idea of El Salvador becoming a bitcoin mining hub utilizing the country’s geothermal potential. Bitcoin mining facilities are expected to be developed soon exploiting the country’s volcanos to generate renewable energy. In fact, President Bukele has already instructed the state-owned geothermal electric company’s head to assemble a plan to develop Bitcoin mining facilities. These facilities will mine Bitcoin with cheap, clean, and renewable geothermal energy from volcanoes. The bitcoin mining solution that El Salvador’s facilities will provide will be carbon neutral with zero carbon emissions. This is particularly promising following recent concerns regarding the cryptocurrency’s environmental impact globally.
Following these news, the focus will now be on how the adoption proceeds in El Salvador as well as whether other nations are planning to follow soon. Concluding, these events will be detrimental to the future of bitcoin and cryptocurrencies.
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