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El Salvador wowed the world by adopting Bitcoin as legal tender. Other countries are taking note

Following crypto’s adoption in one struggling economy, nations in Latin America and elsewhere are now weighing the pros and cons of digital currency.

El Salvador marked its place in history by becoming the first country to adopt Bitcoin as legal tender. Other Latin American countries may not be far behind. 

In June, Paraguay legislator Carlos Rejala announced on Twitter the country is looking to make Bitcoin an alternative payment method. Late last month, the Cuban government announced in its Official Gazette it will recognize and regulate cryptocurrencies for payments, according to an Al Jazeera report

Also last month, Uruguay introduced a bill that allows citizens and businesses to use digital currencies for payment. However, the bill does not classify cryptos as legal tender, meaning that while everyone would be free to use crypto, acceptance would not be mandatory.   

The latest Latin American country to join the list where digital assets are set to achieve status as legal currency is Panama. Gabriel Silva, a Panamanian congressman, on Tuesday announced on Twitter that a crypto regulation bill — seeking to recognize cryptocurrencies including Bitcoin and Ether as global alternative payment methods — will be considered by the country’s parliament. 

Silva said the bill seeks to make Panama a country compatible with blockchain, crypto assets and the internet. “This has the potential to create thousands of jobs, attract investment and make the government transparent,” he said. 

If passed into law, cryptocurrencies would become legal alternative payment methods across the nation. According to the draft bill, all Panamanians may “freely agree on the use of crypto assets, including without limitation Bitcoin and Ethereum, as a means of payment for any civil or commercial operation not prohibited by the legal system,” once the bill becomes law. 

The Panamanian crypto bill was drafted after discussions with various industry stakeholders, and after dozens of meetings and email discussions with Panamanians. The authors of the draft bill also undertook studies to analyze the crypto regulatory landscape in over 50 countries

The Panamanian crypto bill would not force businesses or consumers to accept cryptocurrencies, but would provide them the freedom to transact in crypto if they choose to. This is in contrast to the Salvadoran legislation which stipulates that as legal tender, government and businesses are obligated to accept Bitcoin for payments. 

El Salvador’s president and finance minister have, however, reiterated over time that adopting Bitcoin will remain optional. But earlier this week, Javier Argueta, legal advisor to El Salvador’s president, contradicted the president’s stance, saying that businesses that refuse to accept Bitcoin will be penalized under the country’s Consumer Protection Law. 

In Brazil, a law project was introduced in June that proposes a period of 180 days for the executive government to come up with regulation for cryptocurrency transactions. The project is currently awaiting approval from Congress. There is also another commission that is currently looking into regulating cryptocurrencies in the legislative Chamber of Deputies. 

On Monday, the director of Brazil’s central bank said the government is looking to establish rules that will prevent Brazilians from hiding their crypto activities. “I can’t say much. But the names of those involved in cryptocurrency operations will be known end-to-end,” the central bank director was quoted by local media. “I can say that anonymity will not be an option.” Currently, crypto businesses in Brazil are required to report all their operations, including user transaction data, to the regulators. 

Crypto legalization beyond Latin America

While Latin America is leading the charge for crypto adoption in the West, in the East, Ukraine has passed a law on Wednesday to legalize cryptocurrencies including Bitcoin, albeit not for payments. Cryptocurrencies were a gray area in the country before — law enforcement authorities treated digital assets as a scam and raided crypto businesses and confiscated equipment without any grounds, according to a local publication

If President Volodymyr Zelensky signs the bill, it will be passed into law. It is worth noting that while the bill recognizes cryptocurrencies, it does not allow their use for payments or exchange of goods or services — Ukraine’s fiat currency hryvnia remains the only legal tender in the country. 

But the law will allow Ukrainians to own, exchange and trade crypto on local or foreign exchanges and protect crypto holders from fraud. The law will also set a crypto regulatory framework and allow crypto businesses to officially operate in the country.

Ukraine’s move to legalize crypto is unsurprising since the country snagged the top spot in Chainalysis’ Global Crypto Adoption Index in 2020. Although it got bumped to fourth position in 2021, Ukraine remains one of the top adopters of crypto — the country sent US$8.2 billion worth of cryptocurrencies and received US$8 billion between June 2019 and June 2020, according to Chainalysis data

But the country also ranks highly for crypto scam activities. Ukraine directed the most web traffic to crypto scam websites in the world between July 2020 and June 2021 — more than twice the traffic directed by the U.S., according to Chainalysis data

Other countries around the world have or are looking to introduce laws to recognize cryptocurrencies and regulate them. For instance, in Canada, cryptocurrencies are regulated by the securities law and treated as a commodity for taxation.

In Germany, cryptocurrencies are recognized as “units of accounts,” which are defined by the German Banking Act as units of value not denominated for legal tender but comparable to foreign exchange. This allows businesses and individuals to freely use Bitcoin for payments, although it is not legally recognized as currency. A license is required only for commercial Bitcoin transactions like those conducted by mining pools.  

Many more countries may follow suit

While several countries are considering adopting cryptocurrencies, either for payments or for investments and trading, others are still debating it or holding back. For instance, on Tuesday, Russian Press Secretary Dmitry Peskov said that Russia, which ranked first in Chainalysis’ Crypto Adoption Index last year, has no reason to recognize Bitcoin. 

Calling Bitcoin a quasi-currency, Peskov said that adding digital assets to the country’s monetary system will only do harm. “It is unambiguous that Russia is not ready for such steps,” Peskov was quoted by a local publication.

Similarly, India has debated a crypto ban, in the lines of China, for years. The latest update suggests the government is looking to classify digital assets as commodities. India’s crypto bill is still waiting for a cabinet approval before it can be introduced into the Parliament. 

But industry experts are largely convinced that many more countries will adopt crypto going forward. In a recent interview with Forkast.News, Ben Caselin, head of research at crypto exchange AAX, said numerous countries, especially those that rely heavily on remittances like the Philippines, will look at adopting cryptocurrencies to reduce remittance costs. 

“It makes sense to kind of optimize these payment rates. If you are a country that relies heavily on the U.S. dollar like El Salvador that doesn’t actually have any say over its monetary policy, then this is also a great way to kind of offset that risk,” Caselin said. 

El Salvador is one of many dollarized economies, or countries that have adopted the U.S. dollar as legal tender. That list includes Panama, Zimbabwe, Ecuador, Guam, and Puerto Rico, among others. Countries can gain stability and reduce inflation by adopting the U.S. dollar, but they lose the power to control inflation and fiscal policy — a risk that Caselin believes can be tackled by adopting cryptocurrencies. 

Caselin is not the only one who thinks this way. On Wednesday, Edward Snowden, the whistleblower behind the U.S. National Security Agency’s surveillance revelations, tweeted that there is now pressure on competing countries to adopt Bitcoin, even if only as a reserve asset, since Bitcoin’s design incentivizes early adoption. “Latecomers may regret hesitating,” he wrote.

Echoing Snowden’s thoughts, Cardano founder Charles Hoskinson, in a YouTube livestream titled “Congratulations Bitcoin,” said: “In the coming years, many more nation-states will use crypto as part of their monetary policy, either as reserves in their central banks or using cryptocurrency rails for central bank settlements, or potentially just simply taking a cryptocurrency — as El Salvador has done — and make it the national currency.”

“What this does is it legitimizes that we should be in control of the money in our pocket and we should ultimately be in control of how that money moves and who receives it,” he added. 

But a nagging question that remains unanswered as yet is the reliability of Bitcoin and other cryptocurrencies as legal tender. Crypto assets can be volatile and their prices can skyrocket or nose-dive with relatively small incidents like a tweet from Elon Musk. While Bitcoin has gained stability over the years, it still remains volatile enough to create huge losses in assets for people using it as legal tender.