Nayib Bukele, El Salvador’s laser eyes President, shocked the world by the Bitcoin 2021 conference in Miami when he announced that bitcoin would become legal tender in his country. A few days later, the “Bitcoin Law”It was approved, ushering in a new era for virtual currency.
There is something in the law, which requires providers to accept bitcoin, that goes against the voluntary spirit of “opt-in” for Bitcoin. However, there are key features of the law that many people may have overlooked that protect providers from the risk of keeping the asset volatile while maintaining the benefits of using bitcoin in transactions.
First, the law confirms that providers are required to accept bitcoins as legal tender. However, for accounting purposes, dollars will remain the “reference” currency, which means that prices will continue to be expressed in dollars but “may” be expressed in bitcoins. Second, steps have been taken to avoid forcing providers to hold onto bitcoins.
Art. 8. Without prejudice to the actions of the private sector, the State will provide alternatives that allow the user to carry out transactions in bitcoin and have automatic and instant convertibility of bitcoin to USD if they so wish. In addition, the State will promote the training and the necessary mechanisms so that the population can access bitcoin transactions.
Art. 9. The limitations and operations of the alternatives for automatic and instant conversion from bitcoin to USD provided by the State will be specified in the Regulations issued for this purpose.
Art. 14. Before the entry into force of this law, the State will guarantee, through the creation of a trust in the Development Bank of El Salvador (BANDESAL), the automatic and instantaneous convertibility of bitcoin to USD necessary for the alternatives offered by the State mentioned in art. 8.
Fountain: Here to look
In a impromptu interview with Bukele, it was revealed that the citizens of El Salvador will have open access to an official government wallet, designed by Strike – which will allow recipients to instantly and automatically convert incoming bitcoins into dollars if they do not want to take the risk of holding an asset as volatile as bitcoin. Here’s what Strike does best: turn bitcoin into a payment method that users don’t even have to think about.
The government of El Salvador is establishing a $ 150MM trust fund with the Development Bank of El Salvador (BANDESAL), and anyone who converts their bitcoin to dollars with the official wallet is essentially selling their bitcoin to the trust fund.
When the trust fund has more than $ 150MM of bitcoin, it will rebalance and use the proceeds to finance technology investments in El Salvador. The worst possible outcome is that the $ 150MM only stimulates tourism and investment in the impoverished country. The best possible result is unlimited upside potential.
Users will also not be required to use the government wallet. They can use a private custodial or non-custodial Lightning wallet if they wish. And any private wallet service, made by Strike or any other neobank, could offer the same conversion service.
Therefore, this is not a full legal tender mandate in the traditional sense. Users are not required to take the risk of holding bitcoins or provide bitcoin exchanges and are free to receive dollars if someone sends them bitcoins. Providers only need to have a Lightning QR code and can instantly and automatically receive dollars when someone gives them bitcoins.
One can imagine a world where this type of adoption model spreads to other countries, using bitcoin as an open payment method that stimulates regional investment, while third parties take the risk.
Your average saver may not like volatility, but guess who does? Professional money managers. If banks want to remain relevant, they will eventually realize that money can be made by becoming the third party to take on and manage the risk of withholding bitcoin from Lightning payments as a value-added service.
Is forcing bitcoin as legal tender still a form of government coercion? Yes, of course. Users are mandated, at least during the transaction, to accept an open payment method as a payment option. However, implementing Bukele is a less forceful way to enforce it. Private wallets are open to competing with the government’s implementation and no one is required to hold bitcoins.
The spirit of bitcoin is not to demand its use and to allow the free market to decide its ideal use case. If banks or private services manufactured wallets that used bitcoin’s open payment rails, to reduce friction, and users had the freedom to choose to use those wallets, those wallets would be adopted organically, with no one having to demand their use. However, any law that eliminates capital gains taxes, for bitcoin users, is a huge win.
This is a guest post from Level39. The opinions expressed are entirely my own and do not necessarily reflect those of BTC, Inc. or Bitcoin Magazine.