Bitcoin takes another step down, what is the reason for Bitcoin as a legal tender?
Bitcoin takes another step down, what is the reason for Bitcoin as a legal tender?
On March 3rd, the southern Swiss city of Lugano announced that it would make Bitcoin, USDT, legal tender and would partner with Tether to make it the European capital of Bitcoin. This news has attracted a lot of attention, as it is the second region to publicly reveal its bitcoin-related plans after El Salvador launched its plan to create a "Bitcoin City". What are Lugano's "ambitions" behind this?
As Bitcoin becomes more widespread, the digital asset is becoming more and more recognized and accepted in the mainstream world. With this trend in mind, which countries or cities have now made Bitcoin legal tender? And what are the pros and cons of Bitcoin as a legal tender?
Lugano's "Bitcoin Project"
On March 4, 2022, the Swiss city of Lugano (Lugano) announced that Bitcoin, USDT and the Swiss Franc stablecoin LVGA will become legal tender for the city of Lugano, which will allow its citizens to use these crypto assets to pay for public services or pay taxes. The announcement was made at an event called "Lugano's Plan ₿", which was organized by the city of Lugano in partnership with crypto-stablecoin provider Tether, and also as part of their partnership " Bitcoin Plan (Plan ₿)". The partnership between Lugano and Tether is planned to create the city as a European hub for blockchain adoption.
The plan also facilitates the launch of two funds, one of which is a CHF 3 million (about $3.26 million) fund set up by Tether with the Lugano government to encourage the adoption of BTC, USDT and LVGA tokens by stores and businesses across the city. The second is an investment fund of up to CHF 100 million that will fund local blockchain startups and blockchain service providers in Lugano.
Lugano is the first city in the Swiss canton of Ticino and a lakeside city at the southernmost point of Switzerland bordering Italy, a famous tourist city and international financial market. This Bitcoin program will enable over 60,000 citizens of Lugano to pay all personal and corporate municipal taxes" such as public services, parking tickets, ID and passport issuance fees, naturalization fees, etc. with BTC, USDT and LVGA.
Tether and the Lugano government plan to demonstrate blockchain use cases by applying crypto payments in the community, and the city has joined forces with more than 200 stores and businesses to drive bitcoin adoption. In addition, they will overcome scalability barriers for city payments through the Bitcoin Lightning Network.
Switzerland itself has been known to be one of the more crypto-asset friendly countries. This comes after the country's largest online bank, Swissquote Bank, announced plans to launch its own digital asset trading platform in 2022 to meet growing customer demand for digital assets. Commenting on the partnership, Paolo Ardoino, Tether's Chief Technology Officer, said, "After declaring Bitcoin a legal tender, El Salvador's GDP grew by 10% and tourism grew by 30%. Imagine what we could do in a city in the heart of Europe. "
The process of Bitcoin as a fiat currency
Of course, Lugano is not the only city or region that has introduced bitcoin as legal tender. Prior to that, El Salvador was the only country in the world to make bitcoin legal tender. on June 9, 2021, El Salvador passed a bill making bitcoin the country's legal tender, which went into effect on September 7 of last year.
El Salvador has made Bitcoin its second official currency compared to Lugano, while the Swiss franc remains the only legal tender in Lugano. Thus, El Salvador's plans for Bitcoin are clearly more "radical. In addition, El Salvador is also
At a Bitcoin conference event, it was announced that the world's first "Bitcoin City" will be built in the country and will be funded through a Bitcoin bond issue. According to El Salvador's finance minister, the country will issue its first bitcoin sovereign bond from March 15 to 20.
Perhaps it was El Salvador's "demonstration" role and the remarkable progress made that made Lugano willing to partner with Tether to announce its own bitcoin initiative, which will not only incorporate bitcoin as a legal tender, but will also aim to make it a hub for blockchain adoption and the European capital of bitcoin, driving the adoption of crypto assets like bitcoin adoption.
Accepting Bitcoin as legal tender is an extremely innovative and "bold" decision and move for a sovereign country or region. Of course, globally, Lugano is not the only region to take action in this area. So far this year, California and Tonga have both had the intention or idea to establish Bitcoin as legal tender.
In March, the California legislature introduced a bill that could establish bitcoin as a legal tender in the state, according to outside media reports. Previously, Republican state Assemblyman Jordan Cunningham introduced Assembly Bill 2698 on Feb. 19, which has since been referred to committee. But a constitutional amendment may be needed before it can be passed, a complicated process.
The small Pacific nation of Tonga also said in March this year that it may adopt bitcoin as legal tender in the second quarter of 2023 and will conduct bitcoin mining in the third quarter. Lord Faucitua, a former Tongan MP, revealed the timeline for the country's plan to adopt bitcoin. The first step is remittances, the second is legal tender, the third is bitcoin mining, and the fourth is to transfer the country's finances to bitcoin, effectively upgrading the country to the bitcoin standard.
Why is the legitimacy of Bitcoin recognized?
Ukraine, which is already in the eye of the storm during this Russian-Ukrainian war conflict, is in the top five countries for cryptocurrency use and has already established the legal status of cryptocurrencies such as Bitcoin in the country through the new Ukrainian Law on Virtual Assets, which legalizes crypto exchanges and cryptocurrencies. By 2022, Ukraine will open its cryptocurrency market to businesses and investors, according to the Kyiv Post.
Why do more and more countries tend to embrace Bitcoin and even legalize or make it a legal tender?
First of all, for some countries and regions, the decentralized and de-regulated nature of Bitcoin can bring great convenience and even a degree of preservation and "rescue" of national sovereignty. Especially in small and medium sized countries facing a collapse of the fiat currency system or a war crisis, it is easy to start turning to crypto assets as a "non-mainstream" currency. Venezuela, for example, has previously become a hotbed for bitcoin mining and crypto payments due to a prolonged period of severe economic deterioration and rising inflation.
In El Salvador, for example, where 70% of the population does not have access to banking services, the country hopes to change its reliance on cross-border remittances and attract foreign investment by establishing an ecosystem for using cryptocurrencies. In El Salvador, where cross-border remittances account for 24% of GDP, bitcoin may reduce the cost of cross-border transactions and increase the disposable income of some people compared to traditional remittance channels.
Second, as Bitcoin becomes more popular globally, it is gradually becoming a global asset. Its reputation as "digital gold" and its acceptance by the mainstream world has deepened and changed the perception of Bitcoin in many countries. Legalizing Bitcoin could, to a certain extent, attract innovation in the blockchain space and attract more compliant traders.
However, on the other hand, accepting Bitcoin as a legal tender is a more complicated and difficult matter for most countries due to its de-regulated nature and high price volatility. Some critics argue that making bitcoin a legal tender poses a risk to the stability of a country's economic system. Secondly Bitcoin's transaction fees and transaction times are also a factor to consider. Of course, in recent years we have seen the implementation and use of lightning networks in some countries that can play a supporting role in payments. International financial institutions such as the World Bank as well as the International Monetary Fund (IMF) have expressed concern and even opposition to the matter of adopting Bitcoin as a national currency. This is because privately issued tokens avoid regulation by governments and central banks, which are responsible for maintaining economic and monetary stability.
It is expected that in the future, there will continue to be a wide divergence of attitudes towards crypto assets, but as Bitcoin's "mainstreaming" trend evolves, plans for "Bitcoin Cities" like those in El Salvador and Lugano may emerge in more countries or cities. The adoption of Bitcoin in the mainstream world, and the fact that many countries are beginning to regulate crypto assets, will have a profound impact on the future status and growth of Bitcoin.
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