El Salvador

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El Salvador and Bitcoin: The Positives of Bitcoin as Legal Tender

Bitcoin becomes legal tender! El Salvador made an astonishing announcement that took the financial and economic world by surprise.

Last year at the annual Bitcoin Conference, the President of El Salvador, Nayib Bukele, announced that Bitcoin would become legal tender alongside the US dollar. True to his word, in September 2021 El Salvador made history. For a digital coin that was invented just over a decade ago under the pseudonym Satoshi Nakamoto, it was a pretty monumental feat.

Why Did El Salvador Make Bitcoin Legal Tender?

It was a bold move from Nayib Bukele to jump into the world of cryptocurrency. El Salvador is a small Central American country with a GDP of only $25 Billion and a reputation for crime and violence. The decision to become the first country to divert to a digital currency was therefore judged as being experimental and considered unfavourable amongst many institutions, in particular The International Monetary Fund. Despite his critics, Nayib Bukele only reaffirmed his decision.

Inflationary Pressure

El Salvador is one of many small countries that use the US dollar as their default currency. The dollar is the world’s reserve currency, which by its very nature makes it the most stable and reliable currency when it comes to trade and inflation. Nonetheless, the US dollar has its drawbacks like all other currencies. This includes vast amounts of money printing, which over time ultimately leads to currency debasement and a higher cost of living. A direct result of this has seen the US have its highest inflation in over 30 years. At 7% inflation, it seems minuscule in comparison to Venezuela’s 686% and Turkey’s 36%. And yet, it is not unfeasible to imagine this escalating to bigger currencies. 

The knock-on effect for smaller countries that are pegged to the US dollar during a time of inflationary pressure is potentially damaging. This is one of many reasons why Nayib Bukele has chosen to opt out of this system.

The Positives of Bitcoin as Legal Tender

In almost all ways, Bitcoin is the complete opposite of the current fiat monetary system. This is why it is appealing to El Salvador and potentially more countries in the future. 

Bitcoin Fundamentals 

Firstly, Bitcoin is fully decentralised. This means that there is no one central authority or government that can control nor dictate fundamental economic decisions. On top of that, Bitcoin has a fixed and limited circulation of 21 million Bitcoin, which cannot be tampered nor altered with. Moreover, the combination of decentralisation and fixed supply create sound money principles in the form of preventing government interference and currency debasement.

The Lightning Network

One of Bitcoin’s main criticisms around it being a currency is that the network is slow. In addition, some argue it cannot manage payments in comparison to Visa or other central banks. However, as Bitcoin continues to improve as a technology, so does the network. The introduction of the Lightning Network has paved the way for easy, simple payments to be made across the world almost instantaneously and free. Whilst this is important for any country that deems it legal tender, it is especially lucrative for countries with high remittances. Before Bitcoin, citizens in El Salvador would have to pay large amounts to move money across national borders. The lightning network fixes this.


Finally, Bitcoin solves the problem of banking the unbanked. Up to 1.7 billion people do not have a bank account and therefore cannot safely store their money. However, 7.2 billion people have a mobile phone and that is all you need, along with an internet connection, to hold a Bitcoin wallet. In conclusion, Bitcoin offers complete ownership of your assets. Debt is inherent in the system and with the US officially crossing over $30 trillion, it justifies the president of El Salvador’s desire to replace a currency that goes down in value, for one that goes up.

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