El Salvador is the first country to recognize Bitcoin as a legal tender

On the eve of the new law’s implementation, El Salvador’s President, Nayib Bukele, announced the acquisition of 400 bitcoins worth roughly $20 million.

Following its introduction in June, El Salvador’s Bitcoin law takes effect on Tuesday, making it the first country to accept cryptocurrencies as legal currency alongside the US dollar.

El Salvador’s President, Nayib Bukele, announced the purchase of 400 bitcoins valued about $20 million on the eve of the new law’s adoption.

According to Sky News, Bukele claims that the move would boost financial inclusion, investment, and economic growth.

Financial services slated to improve in El Salvador?

Supporters claim that the move would make it cheaper and simpler for migrants to send money home to El Salvador, which is critical considering that remittances account for nearly 24% of the country’s GDP, according to World Bank data cited by CNBC.

Citizens’ access to financial services may also be improved as a result of the change. Over 70% of the country’s “active population” does not currently have a bank account, according to CNN which quoted the CEO of Strike, a digital financial business that assisted with the logistics of the new law.

Critics say country’s economic stability being risked

Nevertheless, there have been objections, with many claiming that they do not know how to utilize the digital currency.

Also, there are concerns that adopting such a historically volatile currency may damage Salvadorans and jeopardise the country’s economic stability.

In April, Bitcoin reached an all-time high of over $60,000, before collapsing and losing over half of its value by the end of the summer.

According to The Financial Times, the bill led to Moody’s decision to lower El Salvador’s debt rating, and the IMF has cautioned about its potentially disruptive implications.

What happens in El Salvador with Bitcoin’s adoption?

Citizens will be allowed to pay taxes in Bitcoin, and businesses will be able to sell items in the digital currency as a result of the law.

Capital gains tax will not apply to money converted into the currency.

El Salvador is now the first government to put Bitcoin on its balance sheet and retain it as part of its reserves, according to CNBC.

It is pertinent to mention here that after adopting legislation in June this year, El Salvador has been planning to embrace cryptocurrencies for months.

It began installing 200 ATMs around the country last month to allow residents to change between the two official currencies of the country.

It’s also creating its own digital wallet, “Chivo,” which will give customers $30 worth of free Bitcoin to encourage usage.