Bitcoin as legal tender

Bitcoin as legal tender

Bitcoin as legal tender


El Salvador, a small coastal country in Central America has become the first in the world to adopt Bitcoin, as legal tender.

Legal tender is the legally recognized money within a given political jurisdiction.



  • Introduction:
    • Introduced in 2009, it is a type of Cryptocurrency that enables instant payments to anyone.
    • Cryptocurrency is a specific type of virtual currency, which is decentralised and protected by cryptographic encryption techniques.
    • Bitcoin, Ethereum, Ripple are a few notable examples of cryptocurrencies.
    • Bitcoin is based on an open-source protocol and is not issued by any central authority.
  • Use:
    • Originally, Bitcoin was intended to provide an alternative to fiat money and become a universally accepted medium of exchange directly between two involved parties.
    • Fiat money is a government-issued currency that is not backed by a commodity such as gold.

Reason behind adopting Bitcoin, as legal tender:

  • Loss on Remittances:
    • El Salvador relies heavily on money sent back from workers abroad.
    • Bitcoin adoption may make these remittances quicker and cheaper.
  • Boost Financial Inclusion:
    • It is also expected to boost financial inclusion in their country as the majority of the population does not have access to formal banking channels.


  • In the absence of a central regulating authority, legalizing bitcoin will have potential for fraud and money laundering, high energy costs and extreme volatility.

Implications for the Crypto World:

  • This could potentially encourage other smaller countries with weaker economies to open up to crypto as an alternative to fiat currencies, paving the way for mainstream future adoption worldwide.
  • Already, Venezuela and many African countries have started using cryptocurrencies as a long term store of value, as their currencies are deflating quickly.

Download Yojna IAS Daily Current Affairs of 12 Jun 2021

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