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Bitcoin Law

The Bitcoin Law[6] (Spanish: Ley Bitcoin, pronounced [ˈlej biðˈkojn])[7] was passed by the Legislative Assembly of El Salvador on 8 June 2021, giving the cryptocurrency bitcoin the status of legal tender within El Salvador after 7 September 2021.[8] It was proposed by President Nayib Bukele. The text of the law states that "the purpose of this law is to regulate bitcoin as unrestricted legal tender with liberating power, unlimited in any transaction, and to any title that public or private natural or legal persons require carrying out".[6]

Bitcoin Law
Legislative Assembly of El Salvador
Territorial extentEl Salvador
Enacted8 June 2021[1][2][3]
Effective7 September 2021[4][5]
Status: In force

History

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Bitcoin ATM in El Zonte, El Salvador

Bitcoin use as a currency in El Salvador had been experimented with since at least 2019, and current President Bukele expressed interest in bitcoin while he was mayor of San Salvador in 2017. Bloomberg News reported in June 2021 that Bukele and some members of the Nuevas Ideas party had owned Bitcoin for years.[9]

The coastal village of El Zonte has had an active experiment underway to use bitcoin in the local economy since 2019, where some workers have received their salary and can pay bills in bitcoin, and others use it to buy food and other goods from local shops.[9][10]

At a conference for bitcoin in Miami in June 2021,[11] President Bukele announced that he would be looking to promulgate a law allowing bitcoin as legal tender, saying that it would "generate jobs and help provide financial inclusion to thousands outside the formal economy".[12] According to Bukele, the law is aimed at the approximately 70% of Salvadorans without bank accounts, and will increase inclusion for them.[6] Bukele argued that the bill would increase investment as well as reducing fees from current services for remittances.[13] In pushing the bill, Bukele cooperated with Strike, a financial service firm[12] which uses the Lightning Network for settlement,[14] and Jack Mallers, its CEO.[9][13]

The law was passed by the Legislative Assembly on 9 June 2021, with a majority vote of 62 out of 84. Bitcoin became legal tender on 7 September 2021,[5] 90 days after the publication of the law in the official gazette,[15][16] which makes El Salvador the first country to have bitcoin as legal tender.[5][17] Bitcoin joined the United States dollar as the second official currency of El Salvador.[18][needs update]

Reception

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The law was commented on as something of good "PR value" for Bukele, as a "young president trying to capitalise on a popular image". It was also criticized due to the volatility of bitcoin when used as an investment,[12][13] and the high transaction fees when used as a method of payment.[19]

Siobhan Morden of Amherst Pierpont commented that the law could bring complications to Bukele's talks with the International Monetary Fund.[20] She noted that the law would "likely only compound concerns about corruption, money laundering and the independence of regulatory agencies."[16] Carlos de Sousa of Vontobel Asset Management expressed concerns that the decentralized system would lead to easier money laundering and tax avoidance.[20] According to Ernst & Young, the adoption of bitcoin as legal tender by El Salvador could have consequences for US taxpayers holding the cryptocurrency, because "If more countries adopt bitcoin as legal tender, the US federal income tax treatment of bitcoin could change. Instead of being treated as an investment that is a capital asset, bitcoin could be treated as generating ordinary income under Section 988."[21]

In an August 2021 poll conducted by Salvadoran newspaper La Prensa Gráfica, a majority of people polled said they opposed the Bitcoin Law, and almost three quarters of respondents said they would not accept bitcoin as payment.[22]

According to a December 2021 survey done by the Central American University 100 days after the Bitcoin Law came into force: 34.8% of the population had no confidence in Bitcoin, 35.3% had little confidence, 13.2% had some confidence, and 14.1% had a lot of confidence. In the first six months after the establishment of the Bitcoin Law, 56.6% of respondents had downloaded the government Bitcoin wallet; among them 62.9% had not yet used it or only once whereas 36.3% used Bitcoin at least once a month.[23] 48.5% of respondents thought then that the Bitcoin Law should be abolished.[24][needs update]

Implementation

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Main article: Bitcoin in El Salvador

The new law took effect on 7 September 2021.[5] In the early hours after the law took effect and the official launch of new technologies to deal with a major change to the national currency infrastructure, the government had to take its bitcoin e-wallet, Chivo, offline due to excessive load.[22] The Bukele government increased server capacity and brought the e-wallet back online by mid-day.[5] 7 September 2021 also saw a crash in bitcoin to its lowest in almost a month, causing the country to experience a 3 million USD paper loss. The Salvadoran government tried to rectify this by buying bitcoin, allowing the price to rise above 52,000 USD.[25] Due to concerns about bitcoin's volatility, as a result, over 1,000 protestors gathered outside the Supreme Court of El Salvador to protest the law. Chivo was initially rejected by many platforms early on the first day, but became increasingly accepted by them.[26]

A month after adoption of the Bitcoin Law, more El Salvadorans have Bitcoin wallets than traditional bank accounts. The most popular bitcoin wallet—the government's officially-sponsored Chivo wallet—had been downloaded by three million people, "amounting to 46 percent of the population. By contrast, as of 2017, only 29 percent of Salvadorans had bank accounts."[27] The use of the Chivo wallet has been incentivized by the government with US$30 seed money deposited into every Salvadoran's account. Other Lightning-enabled bitcoin wallets may be used by Salvadorans in lieu of Chivo. In addition, many of the largest gas stations in the country are offering a 20 cents per gallon discount on gasoline for those who pay through the Chivo app.[27] One month on, 12 percent of Salvadoran consumers have used the cryptocurrency, but 93 percent of companies surveyed reported receiving no payments in bitcoin during the first month.[28][needs update]

See also

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References

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  1. ^ Aleman, Marcos (9 June 2021). "El Salvador makes Bitcoin legal tender". Associated Press. Archived from the original on 13 June 2021. Retrieved 16 June 2021.
  2. ^ "El Salvador aprueba el uso de Bitcoin como moneda de intercambio". Agencia EFE (in Spanish). 9 June 2021. Archived from the original on 12 June 2021. Retrieved 16 June 2021.
  3. ^ "El Salvador first country to approve bitcoin as legal tender". Agence France Presse. 9 June 2021. Archived from the original on 10 June 2021. Retrieved 16 June 2021.
  4. ^ Renteria, Nelson (26 June 2021). "Bitcoin to become legal tender in El Salvador on Sept 7". Reuters. Archived from the original on 25 June 2021. Retrieved 25 June 2021.
  5. ^ a b c d e "El Salvador Becomes First Country to Adopt Bitcoin as National Currency". The Wall Street Journal. 7 September 2021. Archived from the original on 7 September 2021. Retrieved 7 September 2021.
  6. ^ a b c Kharpal, Arjun (9 June 2021). "El Salvador is one step closer to making bitcoin legal tender after proposing new law". msn.com. CNBC on MSN.com. Archived from the original on 9 June 2021. Retrieved 9 June 2021.
  7. ^ Diario Oficial, numero 110, tomo n° 431, 9 de junio de 2021 Archived 12 June 2021 at the Wayback Machine, Official Journal of El Salvador, National Press of El Salvador
  8. ^ Gorjón, S. (2021). The role of cryptoassets as legal tender: the example of El Salvador. Banco de Espana Article, 35, 21.
  9. ^ a b c Fieser, Ezra (16 June 2021). "Bitcoin Beach: What Happened When an El Salvador Surf Town Went Full Crypto". Bloomberg News. Archived from the original on 17 June 2021. Retrieved 18 June 2021.
  10. ^ "How a California surfer helped bring bitcoin cryptocurrency to El Salvador". Los Angeles Times. 22 June 2021. Archived from the original on 21 March 2023. Retrieved 16 March 2023.
  11. ^ The Associated Press (6 June 2021). "El Salvador's President Proposes Using Bitcoin As Legal Tender". NPR. Archived from the original on 9 June 2021. Retrieved 9 June 2021.
  12. ^ a b c "Bitcoin: El Salvador plans to make cryptocurrency legal tender". BBC News. 7 June 2021. Archived from the original on 9 June 2021. Retrieved 9 June 2021.
  13. ^ a b c Porterfield, Carlie (6 June 2021). "Here's Why El Salvador Wants To Be The First Country To Formally Adopt Bitcoin". Forbes. Archived from the original on 9 June 2021. Retrieved 9 June 2021.
  14. ^ The Bitcoin Law: Counterfeit Free Choice in Currency Archived 6 July 2021 at the Wayback Machine, George Selgin, 17 June 2021, accessed 18 June 2021.
  15. ^ "Bitcoin: El Salvador makes cryptocurrency legal tender". BBC News. 9 June 2021. Archived from the original on 23 June 2021. Retrieved 9 June 2021.
  16. ^ a b Webber, Jude; Szalay, Eva (9 June 2021). "El Salvador becomes first country to adopt bitcoin as legal tender". Financial Times. Archived from the original on 9 June 2021. Retrieved 9 June 2021.
  17. ^ Hart, Robert (9 June 2021). "El Salvador Makes History As World's First Country To Make Bitcoin Legal Tender". Forbes. Archived from the original on 8 September 2021. Retrieved 9 June 2021.
  18. ^ Renteria, Nelson; Esposito, Anthony (8 September 2021). "El Salvador's world-first adoption of bitcoin endures bumpy first day". Reuters. Retrieved 9 September 2021.
  19. ^ "El Salvador may be the first country to accept Bitcoin as legal tender". Engadget. 6 June 2021. Archived from the original on 9 June 2021. Retrieved 9 June 2021.
  20. ^ a b Arnold, Tom; Strohecker, Karin (9 June 2021). "El Salvador president's bitcoin push casts shadow over IMF efforts". Reuters. Archived from the original on 8 June 2021. Retrieved 9 June 2021.
  21. ^ US taxpayers should be mindful of certain tax provisions that may need to be considered with respect to bitcoin following approval of recent legislation in El Salvador Archived 18 June 2021 at the Wayback Machine, 14 June 2021, Ernst & Young
  22. ^ a b Livni, Ephrat; Lopez, Oscar (7 September 2021). "El Salvador's Adoption of Bitcoin Is Off to a Rocky Start". New York Times. Archived from the original on 8 September 2021. Retrieved 8 September 2021.
  23. ^ Welle (www.dw.com), Deutsche. "El Salvador: 70% de la población desconfía del bitcóin, según sondeo | DW | 15.01.2022". DW.COM (in European Spanish). Retrieved 15 January 2022.
  24. ^ "Evaluación de año 2021 | Iudop" (PDF). uca.edu.sv. Retrieved 15 January 2022., pp. 34-37
  25. ^ Esposito, Anthony; Renteria, Nelson (7 September 2021). "El Salvador's world-first adoption of bitcoin endures bumpy first day". Reuters. Archived from the original on 7 September 2021. Retrieved 8 September 2021.
  26. ^ Silver, Katie (8 September 2021). "Bitcoin crashes on first day as El Salvador's legal tender". BBC. Archived from the original on 8 September 2021. Retrieved 8 September 2021.
  27. ^ a b Roy, Avik (7 October 2021). "In El Salvador, More People Have Bitcoin Wallets Than Traditional Bank Accounts". Forbes. Retrieved 10 October 2021.
  28. ^ "Bitcoin use in El Salvador grows amid setbacks since its adoption as legal tender". NBC News. 7 October 2021. Retrieved 12 October 2021.
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