What it Means to Make Bitcoin a Legal Tender

June 9, 2021, marks the first move that would make history in Bitcoin’s timeline. El Salvador passed a bill where 62 of 84 congressional voters would make Bitcoin a legal tender. Fast forward to September 7, and El Salvador became the first country to make Bitcoin a legal tender. In this article, we shall look into what it means for Bitcoin to be a legal tender in detail;

What is Legal Tender?

“This note is legal tender for all debts, public and private” will be the message on every U.S banknote. The government has enforced the statement in federal law in different forms since the 1800s.

Hence, legal tender refers to money, in coins and banknotes, acceptable if offered in debt payment. An asset classified as legal tender does not mean that citizens can use it for day-to-day uses. It depends from one country to another and how they define legal tender.

How it Affects Merchants 

Legal tender, however, does not mean that merchants should accept it as a form of payment. The definition only encompasses debts that creditors have to pay. The U.S. treasury, which prints and mints coins, states so on its website. Even more, the Federal Reserve, which distributes currency to banks, confirms it on its site, too. Hence, you will find that a lot of companies such as airlines take credit card payments. On the other hand, small retailers only accept cash.

Any currency issued by the Fed Reserve is under the U.S. legal tender definition. Hence, no seller has the mandate to accept cash dollars as payment. The same applies to most countries where coins and banknotes are legal tenders.

Repercussions for the EU

In the EU, electronic money is not legal tender. Most states do not consider Bitcoin to be e-money. That’s why the new status as legal tender does not change this situation. 

Still, there are anti-money laundering concerns. The AMLD5 defines virtual currencies as a digital representation of value, not issued by a central bank or public authority. They are not necessarily a currency. Instead, the people who use it as a means of exchange accept it as legal. 

Initially, Bitcoin fulfilled all these elements of a virtual currency. However, since then, it has become a legal currency in the country. So, the question is whether that disqualifies Bitcoin and virtual currency under the AMLD5. 

Regulation issues

In theory, Bitcoin exchanges and custodian wallet providers would no longer fall in the EU AML framework. If this is the case, other cryptocurrencies continue to exist under the legal framework. Also, regulators have done a lot about bitcoin anti-money laundering, and they are doubtful to let it all go away.

You should note that the legal tender definition only came later. Also, it still needs revisions to encompass Bitcoin as a legal tender. It would be wise to make an apparent distinction for virtual currencies as legal tender for regulatory purposes.

Low Remittance Fees 

The United Nations and the G20 have made several appeals to cut remittance costs. However, the fees that migrants must pay to send their money home are still scandalously high.  

The World Bank found the average worldwide sending cost of $200 is over $13. The amount is significantly more than the 3% over the Sustainable Development Goal target. However, in 2020, countries of low and middle incomes received $540 billion of remittances. It was just slightly less than the 2019 total of $548 billion. 

On the other hand, it was much larger than foreign direct investment inflows ($259 billion in 2020). Also, it was more significant than development aid from overseas ($179 billion in 2020). Reducing the fees by only 2% could increase remittances by as much as $16 billion per year.

Coordinated cross-border measures are needed promptly to ensure that Bitcoin and its derivatives in developing nations cause more harm than benefit. Bitcoin and other low-cost alternatives to traditional banking will appeal increasingly to people. That’s because the centralized system lacks significant reform.

Taking Care of the Unbanked

However, the only problem is not hefty fees. Many migrants do not have bank accounts in their home nation. Also, their families may be among the world’s 1.7 billion without access to bank services. With Bitcoin, one only needs a digital device and internet connection to have a wallet. 

In addition, some international migrants may have to send funds to nations that do not have access to banks. For instance, they cannot perform cross-border transfers to states like Syria or Cuba.

As Bitcoin becomes legal tender, citizens have access to digital wallets to carry out transactions. It can also boost the growth of P2P digital infrastructure overall, which has made a significant contribution to financial inclusion.

High Volatility May Destabilize the Economy

Having two tenders is a good idea for diversifying payment means in a given country. However, there’s a problem when one of them is a highly volatile currency that can change its value in just a minute.

Since citizens can use Bitcoin as a legal tender to pay debts, look at this scenario. When one owes a debt in bitcoin, there are several arising issues. Who decides how many bitcoins are under ownership by the end of a specific period? Will the decision be based on the Bitcoin price at the time of debt or time of repayment? Here, keeping in mind that just a few days could cause a massive difference in the price. 

With this in mind, if the buyers expect the price to rise, the most obvious thing is to wait. If the prices were going to fall, merchants would not accept the payment. Hence, the U.S. dollar still applies in most transactions.


El Salvador is the first country to adopt Bitcoin as legal tender is a significant milestone for the cryptocurrency. It has taken crypto 12 years to become a country’s official currency, and that is impressive. Also, in terms of regulation, this is the furthest it has come.

Bitcoin live price
price change

The question of whether other countries will follow the move remains unanswered. However, the movie is an opportunity to test out the practicability of bitcoin as a country’s currency. Of course, El Salvador has faced a lot of negativity. About two-thirds of its population is against the use of bitcoin as a legal tender. President Bukele is optimistic that he can boost the economy and encourage investors to spend crypto in his country. Well, time will tell. 

Stay up to date with our latest articles

More posts

Top 10 Ways to Earn Free Bitcoin in 2022

Here are the best ways to earn free Bitcoin when your purse is light. --- Are you interested in Bitcoin, but still hesitant to risk putting money towards it? Alternatively, are you looking to sat every sat possible, but lack the dry powder to buy more? Here’s a secret: you can put more bitcoin in your pocket without spending a dime – or even doing any real work.  That’s not to say you’ll earn much bitcoin without either of those…

What is Taro? Trading Assets and Currencies on Bitcoin

Taro leverages Bitcoin, lightning, and Taproot to enable the peer-to-peer transfer of currencies and assets beyond just BTC. —  Worried that Bitcoin is too boring to play within the growing digital asset economy? Fret no longer.  Using Taro, the original blockchain network can support the decentralized exchange of multiple assets – including fiat currencies. Moreover, the protocol works together with the lightning network, letting users transact – instantly and for free – with non-BTC-denominated balances.  Read below to learn about…

What is Fedimint? The Custody Solution to Bitcoin Privacy

Fedimint combines distributed custody with blind-signed ecash tokens to let Bitcoin users transact in private. --- Despite its growth, Bitcoin still faces some glaring limitations to reaching mass adoption as a fully censorship-proof payments network. One of them is privacy. Bitcoin’s ledger is fully open and public, meaning anyone can track another person’s transactions if they know his public address.  The other is a custody problem. While wallet software UX has improved considerably over time, many Bitcoin holders still store…

Ultimate Beginner Guide to Bitcoin Improvement Proposals (BIPs)

Bitcoin Improvement Proposals (BIPs) are essential tools in the crypto community. They allow the Bitcoin community to propose and vote on changes to the Bitcoin Core software.  BIPs can also work for other wallets/services and have a process for development and implementation. This guide will explore what BIPs are, how they work, and some of their benefits and risks. What are Bitcoin Improvement Proposals (BIPs)? Bitcoin Improvement Proposals (BIPs) are proposals for changes to the Bitcoin protocol. Anyone can submit…

How Much Bitcoin Does Satoshi Nakamoto Own?

Satoshi Nakamoto – Bitcoin’s anonymous founder – may be the single largest Bitcoin whale on the planet. However, there’s no evidence that Satoshi ever has or will spend his coins. In fact, the crypto community isn’t even certain about how many coins belong to the founder. Just how rich is the father of Bitcoin? And what implications could his ancient stash have for both the network and the asset? The Patoshi Pattern One of the most popular theories to date…

What Are Bitcoin Covenants? A Guide to a Controversial Proposal

The proposal to implement Bitcoin covenants has spurred a fiery debate in the Bitcoin community, dividing people on the subject. On the one hand, many believe that covenants could make Bitcoin safer and more scalable. Conversely, others see it as an attack on the network’s decentralized, anonymous, and censorship-free nature. While experts unravel the implications of covenants for Bitcoin, we look closer at the proposal and how it could work. This guide to Bitcoin covenants should help clear the air…

Intel’s Blockscale – A New Bitcoin Mining Chip

Earlier this month, Intel announced Blocksale ASIC, the company's second-generation Bitcoin mining chip. Intel plans to deliver the new chip for the third quarter, which it claims will be more energy-efficient. What does this news mean for Intel and the blockchain sector? How will Bitcoin miners react? Intel’s Second Attempt to Attract Crypto Miners Intel's first mining chip, named Bonanza Mine, is a 7nm process packed in lots of 300. We can speak of a 3,600W mining machine with up…

SegWit2x – What is It and How Does It Work?

SegWit2x (“B2X” or “S2X”) was a failed controversial Bitcoin hard fork effort aimed to double the block size limit. Some people in the BTC community went as far as to label this proposal as a “Corporate Takeover”. Over 80% of miners supported SegWit2x, but the community could not agree on the upgrade. There are several things we can all learn from this story, as we will explain in the article. The difference between a “Soft Fork” and a “Hard Fork”…

SegWit (Segregated Witness) – What Is It and How Does It Work?

From Satoshi Nakamoto's historic whitepaper to modern times, the world of cryptocurrencies has changed a lot. This sector has brought about a real revolution in the world economy in just under ten years. Not everyone knows that the algorithm created following Nakamoto's paper has undergone several changes over time. This software (known as "Bitcoin Core") has shown more rigidity than many modern blockchains. For this reason, analyzing one of its significant changes over time is an exciting aspect. Therefore, this…

What Is a Bitcoin Node? A Guide for Beginners

How to evaluate the security of a cryptocurrency? One could easily claim that secure cryptos need to run on a secure blockchain. However, this theoretical statement can have complex applications in the real world. One way to look at the matter is by connecting security to validation. Every blockchain must have a suitable transaction validation mechanism. When it comes to blockchain validation, we generally mention nodes. Today we will talk about Bitcoin nodes. The article aims to explain a very…