El Salvador will officially become the first country to make bitcoin legal tender. This will start on Sept. 7.
The government announced that it would give $30 in free bitcoins to any citizen who will sign up for the national digital wallet to promote the cryptocurrency.
The digital wallet is called Chivo, which means "cool" in English.
Non-citizens who invest three bitcoins in El Salvador, which is around $140,000, will immediately be granted residency. Panama is now considering following in El Salvador's footsteps.
El Salvador to Make Bitcoin a Currency
Legal tender refers to the money, usually coins and banknotes, that establishments must accept if it is offered as payment.
In the United States, the banknotes state, "This note is legal tender for all debts public and private." The statement has been added in the federal law in different forms since the 1800s.
In El Salvador's case, the country switched from its previous currency colon to the U.S. dollar in 2001.
Other countries like Panama, Ecuador, and East Timor all use the U.S. dollar as legal tender, according to Reuters.
However, despite the definition stated above regarding legal tender, it does not mean all businesses must accept it as a payment for a good or service.
The requirement applies only to debts that are owed to creditors. The Federal Reserve and the U.S. Treasury stated that businesses could refuse any legal tender.
The U.S. Treasury is in charge of printing paper money and minting coins, while the Federal Reserve distributes the currency to the country's banks.
This is the reason why so many companies like airlines accept payments by credit cards only, and a lot of small businesses take cash only.
The U.S. Treasury stated that private businesses or organizations do not have to accept currency or coins as payments if they do not want to, as there is no federal statute mandating it.
Private businesses can create their own policies on whether to accept cash or not.
As for El Salvador, its bitcoin law was passed in June. It originally stated that every business must accept bitcoin as payment when offered. However, it received major backlash from the public and experts, according to The Conversation.
When the law was passed, analysts criticized it and called the move "attention-seeking."
A poll posted by the BBC shows that Salvadorians are not prepared for the change, and even the World Bank has warned the country against the adoption of bitcoins, denying El Salvador's legal tender request in June.
The law led to protests, and it resulted in skepticism from the public and economists. El Salvador President Nayib Bukele posted on Twitter last month that businesses no longer have to accept bitcoin if they don't want to.
Currently, there are 150 cash machines installed across El Salvador that convert dollars to bitcoins.
Why El Salvador Made Bitcoin Legal Tender
El Salvador is hoping that accepting bitcoins as payments can help boost the country's economy.
President Bukele said that he believes that this will entice investors to spend the cryptocurrency in the country.
The president also shared his plan to use energy from the country's geothermal utility to mine bitcoin.
Related Article: El Salvador President Notes No Capital Gains on Crypto Due to It Being a 'Legitimate Currency'
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Written by Sophie Webster
