Ultimately, the value of any currency is based not only on speculation but also some kind of backing or basis, whether it is the backing of a country, its explicit use in a particular project or for a particular purpose, or a mark of representative value.
Cryptocurrencies are often in an unusual position because, unlike fiat currency, the tokens in your wallet are not representations of value but are the actual unit of currency, which means that less stable projects and coins have somewhat volatile speculative values.
Thankfully, a crypto card that allows easy on-ramping into the world of cryptocurrency does remove many of the barriers, making it easier to speculate on the values of some currencies or use others.
One of the biggest goals of cryptocurrency as a wider concept was institutional acceptance of decentralised finance, and one measurable target was to get a major token accepted as legal tender.
There have been four countries that have attempted it, but only one country in the world as of 2024 has stayed the course and gone all in on making crypto legal tender as part of major financial reforms.
How did this transpire, how did it turn out, and what does it even mean for crypto to be legal tender?
Legal Tender Is Not What You Think
The concept of legal tender is often misunderstood as an economic concept, typically being very narrow in application and not applicable to most people’s lives unless they happen to get sued a lot.
Legal tender is any object of value or currency that is legally required to be recognised as a payment for any debt and only has legal power in cases where a creditor is trying to get a debtor to repay an outstanding sum.
In this context, legal tender simply means that if you offer to repay a debt in a currency that qualifies as legal tender according to the law that the court follows, that debt is discharged and you cannot be sued for failing to repay should the creditor not accept it.
In practice, unless there has been the establishment of a contract (and thus a debt to be paid), a person can choose the type of currency they want to be paid in.
Shops that have “cash only”, “card only” or “crypto-only” policies are perfectly allowed, and other currencies besides legal tender can be accepted in shops depending on their policy.
However, outside of the narrow legal framework, the colloquial value of being accepted as legal tender is significant, as it creates legitimacy, something deeply converted.
The Gamble Of El Salvador
The smallest country in Central America, El Salvador does not have its own national currency, instead adopting the United States Dollar as the primary form of legal tender from 2001 onwards, after the colón (SVC) depreciated in value to the point that one dollar was worth 25,000 SVC.
This worked for a time but it meant that monetary policy was controlled entirely by another country, which left political leaders looking for a solution.
In 2019, Nayib Bukele was elected president of El Salvador, with one of his biggest policy positions being to adopt cryptocurrency as legal tender.
A man who described himself as the “world’s coolest dictator”, Mr Bukele pushed heavily for crypto, and when his Nuevas Ideas party won a supermajority, he worked to not only consolidate power and put one per cent of the population in prisons described largely in epithets, he also set to work making Bitcoin legal tender.
This involved buying Bitcoin ATMs, setting up an official digital wallet called Chivo and offering $30 worth of the currency for anyone who signed up for the wallet.
The Bitcoin Law of 2021 was not terribly well understood (nine out of ten Salvadoreans did not even know what Bitcoin was) and unpopular at the time (68 per cent disagreed that it should be legal tender), but regardless of this, it was adopted.
It also led to the proposal to build Bitcoin City, a crypto oasis at the base of a volcano where there were no income taxes, energy would be produced via geothermal energy and would be funded by the now-notorious “Volcano Bonds”.
There was also a strict financial policy to buy one bitcoin a day, irrespective of price. This eventually broke even in terms of the cost of the currency but came at the cost of water infrastructure and public services when crypto crashed in 2022.
It has been very successful in driving crypto businesses to El Salvador, something the country openly welcomes by allowing anyone who gives 3 Bitcoin to the country citizenship, but has come at the cost of many of the population, where Bitcoin has seen remarkably low adoption rates even compared to countries such as Mexico and Argentina.