There has recently been some pretty big news recently for adopters and supporters of Bitcoin. The government of El Salvador recently announced that they will soon make Bitcoin a form of legal tender in the country. As a result, a number of other politicians in Central and South America are pushing for their own countries to adopt cryptocurrency as well. Paraguayan politician Carlos Rejala spoke in support of Bitcoin as legal tender. A number of Mexican and Panamanian politicians support crypto as legal tender as well.
But is this necessarily a good idea? Can other countries adopt Bitcoin as legal tender with success? In this quick guide, we put together a list of some of the pros and cons of legalizing Bitcoin. We predict these points will come into play in the event of the global adoption of Bitcoin as a legal tender.
There are a few benefits to using Bitcoin and other cryptocurrencies as legal tender.
Bitcoin purchases are extremely private and discreet. Bitcoin owners can choose to publish their Bitcoin transactions. If they choose not to, their purchases are not automatically associated with their person. Cryptocurrency as legal tender could look quite a bit like cash, but can still be used for online purchases. Crypto purchases are not wholly anonymous or completely trace-proof. However, they are linked substantially less to one’s identity than other forms of payment.
Banking fees are out of control. This is one of the reasons why Bitcoin has become so popular and a point of interest. It’s normal for cryptocurrency exchanges to involve some fees, such as occasional deposit fees, but Bitcoin investors do not have to deal with the wide range of banking fees that are typically associated with fiat monies. By making Bitcoin legal tender, users can enjoy the freedom of making local purchases without the need for a bank and the many fees associated with simply having an account.
Branching off of the last “pro” of making Bitcoin legal tender brings us to the idea of banking the unbankable. There are currently two billion people around the world who do not have access to financial services from banks or cannot access such services due to location or financial history. By making Bitcoin legal tender, the unbankable will be able to access funds from bank-free sources and use those funds within their local economy. This could radically change the way we approach banking and money in general, and we could put more power into the hands of people who have traditionally depended on the remittance industry.
There are a few downsides to using Bitcoin and crypto in general as legal tender.
Bitcoin is notably secure due to the blockchain technology that powers it. Still, there are some concerns about security and protection should crypto become legal tender. Financial institutions and regulators have warned the general public that Bitcoin lacks legal protection. This is because Bitcoin is not controlled by any authority. A decentralized form of currency could certainly erupt in chaos. However, many supporters of Bitcoin note that there are ways of getting around this particular potential problem.
The currency delivered by authorities in any country is controlled and monitored in a centralized system. This makes it possible to ensure that citizens of a particular country pay their local and federal taxes for the benefit of society. One problem that could occur by making Bitcoin legal tender is the high possibility and potential for tax evasion. With crypto, there is virtually no mapping system from Bitcoins to users. Bitcoin is mapped to addresses, and the user involved in the transaction is the only one who knows which addresses they own. For a country like the U.S., should Bitcoin be legalized, the government would have to physically hack into an individual’s account to discover whether or not someone is being honest about the amount of income they generate from Bitcoin. The potential for substantial privacy violations could be a serious problem.
Just as well, the U.S. government cannot implement sales tax onto Bitcoin and other forms of cryptocurrency simply because it is impossible for addresses to be linked to nationality. As a result, it would be impossible to discover how much each individua Bitcoin transaction should be taxed and where those taxes should go.