A current concrete case in which money is transferred internationally into Bitcoin and other cryptocurrencies in America (and many other countries) can be seen in the huge flow of digital funds in the form of donations to Ukraine, which is completely legal. This triggered similar efforts elsewhere, with the Central African Republic becoming the second country to make bitcoins legal tender in April. In the meantime, there are proposals to do the same at the regional level in the United States and elsewhere. But this new push to legitimize cryptocurrencies as a means of payment raises questions about how they fit into their role. But the case of El Salvador suggests that even with considerable government support, cryptocurrencies could struggle to establish themselves as a viable substitute for money. Although El Salvador offered all residents $30 worth of Bitcoin to download the government-backed Chivo wallet, a paper released in April by economists at the National Bureau of Economic Research found that only 20% continued to use it after spending the bonus. The main reason for not using Bitcoins was a lack of understanding, but also a lack of confidence in the currency and its volatility was highly appreciated. What was once considered a niche game for tech enthusiasts and investors is becoming a consumer financial asset. Some bills go so far as to try to make cryptocurrency legal, meaning it would be legally recognized to repay debts, both public and private.

El Salvador is the first country in the world to be legal tender for Bitcoin. Starting in the summer of 2021, a law came into effect requiring businesses to accept Bitcoin for goods and services. Citizens can also pay for the construction of housing with the digital asset, which has no capital gains tax when it is spent. The president of El Salvador threw $30 worth of Bitcoin into the personal wallet of every adult resident who wanted to adopt the new form of payment. Arizona lawmakers will consider a bill to make bitcoin a legal tender in the state. (Carol M. Highsmith/Buyenlarge/Getty Images) “This is a bottom-up approach, just as Bitcoin is a bottom-up approach,” said Dennis Porter, a Bitcoin advocate who is working to move the bill forward. “The states have the final say on what`s in the constitution, and if necessary, we`ll go to an Article V and rewrite the constitution. Popular cryptos, such as Bitcoin, were legal in the United States, although the IRS currently refers to any form of virtual currency as property rather than legal tender. So far, the federal government has not reacted directly, as the states themselves decide whether or not to declare cryptocurrencies that are legal tender. In the United States, the Internal Revenue Service (IRS) has developed a growing interest in Bitcoin and has issued guidelines. In 2014, the agency issued IRS Notice 2014-21 to provide information on the tax treatment of virtual currencies.

Virtual currency is the term the IRS uses for cryptocurrency. For 2020, the IRS added a question on the first page of Form 1040 that requires taxpayers to indicate whether they participated in virtual currency transactions. It has never been “illegal” to buy and hold Bitcoin in the United States – at least not at the federal level. Policies vary depending on the country of residence. For example, legal parties cannot allow unauthorized parties to manage cryptography, just as they cannot allow everyone to manage traditional fiat currencies. Regulators aim to establish new guidelines for companies that offer crypto custody or otherwise manage digital assets. This task is even more complicated because some assets are considered securities while others are held. Then there are also derivatives and other aspects of the investment process. California is not the first state to consider making Bitcoin legal.

In January, Arizona Senator Wendy Rogers introduced a bill that would legalize bitcoin as legal tender in the state. To date, only one country has wholeheartedly adopted bitcoin as its everyday currency, El Salvador introduced it in July 2021 and encouraged the population to move away from the US dollar, which remains legal tender, for crypto.