Yesterday was a momentous day for cryptocurrency. The country of El Salvador passed a law making Bitcoin legal tender in their country. It will go into effect in 90 days. While it remains to be seen how it will affect—everything—this is likely to be a good thing in the long run. It’s definitely a good thing for those of us that believe in cryptocurrency.

El Salvador Today

El Salvador is a relatively poor country, with a nominal per capita GDP of $4,041. Prior to the passage of the Bitcoin law, their only official currency was the US Dollar. It is a country where some children are sponsored by people in wealthier countries in order to hopefully help them escape from poverty (I sponsor one of these children). In 2005, 20% of the population lived in extreme poverty, which is defined by the United Nations as "a condition characterized by severe deprivation of basic human needs, including food, safe drinking water, sanitation facilities, health, shelter, education and information.”

Bitcoin Law Consequences for El Salvador

Even though Bitcoin may be legal tender, it doesn’t mean all places will be capable of accepting it right away. The good news: the number of cell phones exceeds the population, so most of them will be capable of sending and receiving BTC once they learn how to do it. Many El Salvadorians don’t have access to traditional banking services, so in the long run, BTC adoption will provide access to money that they don’t have right now. Additionally, about a third of households receive remittances from abroad; Bitcoin can make it easier for these families to receive money, because they won’t be dependent on places like Western Union. Some politicians are worried about Bitcoin’s volatility; while that is a concern, the government will be making it easy to convert their BTC into USD if they choose to keep their money in fiat.

Bitcoin and the USD

One benefit that the new Bitcoin law might have for El Salvador is reducing its dependence on the US Dollar. The US government has unwisely been digitizing trillions of dollars out of thin air. While the consequences of all this fiscal irresponsibility hasn’t had much of an effect on prices—yet—it is quite possible that the US dollar will see a lot of inflation soon. While a quick search of “US Dollar hyperinflation” reveals that a lot of experts don’t think it will happen, I’m sure the people in Weimar Germany—where the Mark was at one point one of the strongest currencies in the world—didn’t think it would happen to them either. Until it did. One advantage for El Salvador making BTC an official currency is that it will have somewhat of a buffer if this does happen.

Consequences for the Future

For those of us that are cryptocurrency enthusiasts, there is only upside. With more people using Bitcoin, the price is likely to go up. Other countries may follow El Salvador in declaring BTC a currency. This might be particularly attractive to places like Venezuela, where many people already use BTC. With BTC a legal tender, it may become classified as a foreign currency rather than property, which will have tax consequences for people outside of El Salvador. At the moment, we can only speculate on what may happen, but it’s likely that El Salvador’s adoption of Bitcoin will be like a tiny snowball rolling downhill that will later become huge.