A load of countries are making bitcoin legal tender. What the hell does that mean?
Panama is the second Central American country to make plans for bitcoin as legal tender after El Salvador celebrated “bitcoin day” earlier this week. Ukraine is now following suit, which could mean the global economy’s in for a mighty shake-up.
Wait, what’s happening in Panama?
I know, Panama’s finances are usually a juicy story. This one isn’t quite as dramatic as money laundering, but it sure is interesting. Last week, Panama announced a bill to make bitcoin legal tender in the country meaning, if all goes to plan, you could pop to the supermarket to pick up some bits and pay using the same coin that was once reserved for shady doings on the dark web.
Has this ever been done before?
It sure has. Panama’s announcement came just a day after El Salvador’s “bitcoin day” when they officially began allowing residents to use bitcoin as legal tender, making them the first country to use a cryptocurrency as a national currency. But the rollout hasn’t exactly been plain sailing…
Oooh, why not?
Well, actually, the majority of Salvadorans didn’t want the move to go ahead. Before bitcoin day even began, a survey of 1,281 people found that at least 67.9 per cent of Salvadorans either disagreed or strongly disagreed with the use of bitcoin as a legal tender. Since the rollout on 7th September, things have generally gone from bad to worse. Shortly after the law came into effect, the country’s crypto wallet of choice, Chivo, crashed and had to be taken offline. President Nayib Bukele later tweeted on 14th September that “the technical errors of @chivowallet they are 95 per cent corrected.”
So why would Panama make crypto legal tender if it hasn’t gone well for El Salvador?
Part optimism, part FOMO, part research and, from that, opinion. Officially, their bill is called “Crypto Law: Making Panama Compatible with the digital economy, blockchain, crypto assets, and the internet”. In a tweet, Congressman Gabriel Silva mentioned that this could help create jobs in Panama, attract investment from other countries and more. So generally, it seems like they’re just backing the potential of crypto like any old punter might, but on a large this-is-good-for-the-country scale. Of course, they’ll also likely have the belief that they can learn from El Salvador’s mistakes when it comes to roll-out.
Are other countries following suit?
Ukraine is the third country in the mix at the moment. In fact, Ukraine might even get there before Panama. Ukraine passed a draft law to legalise cryptocurrencies on 8th September and their general plan is to open up the market to businesses and investors by next year. Ukraine already has a lot of miners and, while you don’t need a license to mine there, people have come into trouble for “stealing electricity from the grid”. However, in February it was announced that the Ukrainian government is planning to build huge mining centres next to a set of nuclear power plants. The assumption is that the miners will be at least in part nuclear powered.
Is the rest of the world likely to follow in their footsteps?
There’s a chance, yeah. When El Salvador dropped the news, politicians from across “the Americas” endorsed it. The most notable response was from a Paraguayan congressman, Carlitos Rejala. In his response (translated by Twitter) he says “This week we start with an important project to innovate Paraguay in front of the world!”. The tweet is dated June 7, which is just before lawmakers voted in favour of adopting bitcoin. In the tweet, he’s also added a photo of himself with the red laser eyes that have become a meme in the crypto community.
At large, developing countries are the most interested in adopting bitcoin. They have less of a hold on the global economy than the likes of the USA, China and the UK, so it makes sense to take a punt on something new. For many of the countries adopting bitcoin, part of the incentive is to avoid being tied to the patterns of a bigger currency that might be next to them geographically. For example, the economy in places such as El Salvador has been turbulent and they have to rely on the USD doing well for their economy to be OK at large. Yes, bitcoin is turbulent, but the idea is that it has a far more global (and decentralised) potential, which could offer security.
This means that the big dogs of the global economy are going to be most reluctant to get on board because they’ll want to protect what they already have. But this doesn’t mean they won’t want digital currencies of their own. The UK, for instance, is exploring the idea of a Central Bank Digital Currency (CBDC). This currency wouldn’t be decentralised, but it would exist digitally and offer a lot of the same benefits as cryptocurrencies, but without the Government giving up its authority (of course, this is for many the whole point of crypto, decentralisation). Sweden is ahead of the trend in terms of a CBDC, as it is actively testing “E‑krona”. Across the board, as more countries join in with the crypto revolution, there will be a decision to make: stay as we are and hope bitcoin doesn’t boom, or risk the global economy as we know it and get involved.