12 Jun 2021 Bitcoin as legal tender

Posted at 08:08h in Daily current-affairs by rahul123 0 Comments

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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.

About:

Bitcoin:

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.

Concerns:

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.

Yojna IAS Current Affairs Team