The Bitcoin Authorized Tender Enigma
Nayib Bukele, El Salvador’s laser-eyed president, shocked the world at the Bitcoin 2021 conference in Miami when he announced that Bitcoin would become legal tender in his country. A few days later, the “Bitcoin Law” was passed, heralding a new era for virtual currency.
There is something about the law – which requires providers to accept Bitcoin – that violates Bitcoin’s voluntary “opt-in” ethos. However, there are important features of the law that many people may have overlooked that protect sellers from the risk of holding the volatile asset while maintaining the benefits of using Bitcoin in transactions.
First, the law confirms that providers are actually required to accept Bitcoin as legal tender. However, for accounting reasons, the dollar will continue to be the “reference currency” – that is, prices are still expressed in dollars, but “can” be expressed in Bitcoin. Second, steps have been taken to avoid forcing providers to hold Bitcoin.
Art. 8. Without prejudice to the measures taken by the private sector, the state provides alternatives that enable the user to carry out transactions in Bitcoin and, if so desired, to convert them automatically and immediately from Bitcoin to USD. In addition, the state will promote the necessary training and mechanisms so that the population has access to Bitcoin transactions.
Art. 9. The limitations and functioning of the alternatives provided by the state for the automatic and instant conversion of Bitcoin to USD are set out in the regulations issued for this purpose.
Art. 14. Before this law comes into force, the state guarantees the automatic and immediate conversion of Bitcoin to USD by creating a trust at the Banco de Desarrollo de El Salvador (BANDESAL), which is required for the purposes specified by the state in Art. 8.
Source: Nayib Bukele
In an impromptu interview with Bukele, it was revealed that citizens of El Salvador will have free access to an official government wallet – designed by Strike – that will allow recipients to instantly and automatically convert incoming bitcoins to dollars if they do not want to leave You run the risk of holding an asset as volatile as Bitcoin. That’s what Strike does best: turning Bitcoin into a payment vehicle that users don’t even have to think about.
The government of El Salvador is setting up a $ 150 million trust fund with the Banco de Desarrollo de El Salvador (BANDESAL), and anyone who converts their bitcoins to dollars using the official wallet is essentially selling their bitcoins to the Trust fund.
If the trust fund has more than $ 150 million in bitcoin, it will rebalance and use the proceeds to fund technology investments in El Salvador. Worst of all, the $ 150 million will only boost tourism and investment in the impoverished country. The best possible result is limitless upside potential.
Users are also not forced to use the state wallet. You can use a Lightning wallet with private or non-custody if you want. And any private wallet service from Strike or any other neobank could offer the same conversion service.
So it is not a complete mandate for legal tender in the traditional sense. Users are not forced to take the risk of holding bitcoin or providing change in bitcoin and are free to receive dollars if someone sends them bitcoin. Providers only need to have a Lightning QR code and can instantly and automatically receive dollars when someone gives them Bitcoin.
One can imagine a world where this type of introductory model spreads to other countries – the use of Bitcoin as an open payment vehicle that drives regional investments while third parties take the risk.
Your average saver may not like volatility, but guess who? Professional money managers. If banks want to stay relevant, they will eventually find out that there is money to be made by becoming the third party to take the risk and manage the holding of Bitcoin from Lightning payments as a value-added service.
Is enforcing Bitcoin as legal tender still a form of government coercion? Yes, please. Users are obliged to accept an open payment method as a payment option at least during the transaction. Implementing Bukele, however, is a less forceful way of forcing it. Private wallets are open to compete with government implementation and no one is forced to hold Bitcoin.
Bitcoin’s ethos is not to prescribe its use and to allow the free market to decide on its ideal use case. If private banks or services made wallets that use Bitcoin’s open payment channels to avoid friction losses – and users were given the free choice to use these wallets – these wallets would be taken over organically without anyone having to order their use. However, any law that abolishes capital gains taxes is a huge win for Bitcoin users.
This is a guest post by Level39. The opinions expressed are solely their own and do not necessarily reflect those of BTC, Inc. or Bitcoin Magazine.