The impact of Bitcoin becoming legal tender in the U.S.

Right now, the U.S. government sees Bitcoin as a "convertible virtual currency". If Bitcoin gets recognized as legal tender in El Salvador and starts being used for transactions, it could lose the label of "convertible virtual currency" or even "virtual currency" altogether. It would essentially turn into a "real" currency. This would mean a major shift in how Bitcoin is handled legally. The rules that apply to it as a CVC would no longer hold. Instead, I think it would be regarded as a foreign currency, which would bring a whole new set of laws and regulations into play. I’m not a pro when it comes to foreign currency laws, but one thing I’ve heard is that you can spend or convert small amounts of foreign currency without having to pay taxes on it. That means no more worrying about tracking every little bitcoin transaction.

As per the General Definitions section of the Uniform Commercial Code, bitcoin would now become classed as "money" in the US: Although it is obviously big news that a country is recognizing bitcoin as legal tender, the really big news here are all the potential ramifications. I'm sure there are going to be similar situations in many other countries around the world. However, if this is the case, then bitcoin immediately becomes exempt from a whole host of taxes, most notably capital gains taxes. I'm absolutely positive that neither the US nor any other western country is going to roll over and give up on this easily.

Forex traders pay taxes on their capital gains in the U.S.

Traders, sure. But as per Code 998 section (e)(2)(B), transactions which realize gains of $200 or less are exempt, which would allow bitcoin to be used for daily transactions and spending without the ridiculous situation of the IRS wanting people to report capital gains on buying a cup of coffee. I'm not holding my breath, through. The IRS can change their notices on a whim, so I'm sure they will continue to state that bitcoin is not a currency and will not be taxed as such.

Bitcoin gains have been exempt from capital gains taxes in some countries for years now (e.g. Germany), so in those countries you won't see much of a change (ie. tax-wise cryptocurrencies have been treated pretty much like forex already). Nonetheless the implications for the US is still big, I'd say almost bigger than El Salvadore recognizing Bitcoin as legal tender. From my limited understanding this would strongly alleviate some of the regulatory overhead that currently applies in the US, especially for smallish transactions. And any tech that sees more widespread use in the US, will see more widespread use globally eventually. From a technical perspective I'm glad to hear that they are going to use Lighting Network. Assuming El Salvadorians actually start adopting Bitcoin, increased usage will greatly help with getting out some of the kinks out of LN. And the more people start using LN, the sooner we get rid of that whole "Bitcoin doesn't scale" and "A single Bitcoin transaction uses X amount of energy" narrative.

Bitcoin is supposed to be treated as a foreign currency, if Bitcoin is accepted as a foreign currency then Bitcoin will be treated as legitimate as other foreign currencies, although I rule it out at the moment but for me I dream much further than that, I dream that one day Bitcoin will be A major unified global currency in all countries of the world is treated exactly like the national currency and is able to be transferred to any country without any restrictions.

yeah, forget all that if you're paying with a phone, this may end up being the "big reveal", whereby Apple/Google are asked to inform on everyone using their software. Maybe even ARM can do it too (i.e. rooting and replacing the OS won't work in that case) linux-only phones (e.g. pine & purism) can probably be used to get around that sort of thing, as I think they're not using these "secure" ARM chips which likely operate like a rootkit (i.e. ignoring the OS and the user) in future, open source chip designs (so far we have RISC-V) will make that sort of thing irrelevant

I fully expect Apple and Google could already provide a list of every one of their users who has installed a specific wallet or any piece of software on any of their devices without much issue. Maybe they extend that to start spying on users' wallets and transactions. I certainly wouldn't put it past them. Just be sure that the phone you pick isn't actually an FBI honeypot: https://en.wikipedia.org/wiki/ANOM

I expect they both have the data and are using it. The question is: will they give it up to the IRS etc? Possible plot twist; IRS ask, Google/Apple say no. Stranger things have happened, and it's more or less official now we are living in the crazy '20s

For this to happen, El Salvador must add a Bitcoin fund to its gold and foreign exchange reserve, (correct me if i'm wrong). In addition, I am almost sure that the United States will find a point of pressure on the government, and on the Salvadoran banks, (considering that their government debt is 4 times higher than their gold and foreign exchange reserves). If not, the US will find another way to eliminate this likely precedent.

I don't think that pressuring El Salvador will do anything. Tanzania and others may "join the club" soon, making US "pressure" useless. But making a separate ("earnings") category specifically for crypto currencies (no matter they are used in real economies/countries or not) is imho another possible direction. So even if it may be an exception this year, I don't expect this miracle last.

Not even legal tender. Just some small tweaks to the currently cumbersome and draconian tax code surrounding BTC would help. In Australia, you can use BTC as a "Personal use asset" to buy stuff online up to a certain threshold without having to pay any capital gains tax (so long as you are using it to transact and not actually invest). Something similar in the U.S. would certainly boost adoption for BTC as an actual currency as opposed to just a stagnant asset, given the amount of people currently holding coins based in the U.S..

I don't see why they would say no. Pissing off the government and making it harder for themselves to continue to flaunt the rules and pay zero tax isn't in their interests. Pretty much everyone knows that Google is spying on them and selling that data to anyone and everyone; most people simply don't care. They aren't going to win any fans by saying "Look, we didn't hand over your data to the IRS on this one specific occasion". This is absolutely what should happen as discussed above. By various United States laws, mainly the Code of Federal Regulations and the Uniform Commercial Code, as the legal tender of a foreign nation bitcoin should be classed as currency, and therefore exempt from all capitals gains taxes for any transactions below $200. But the US government don't exactly have a strong record on following the law then it doesn't suit them.

I heard about this about 2 weeks ago, once one country uses a particular currency there is an obligation for other countries to also recognise that currency also. In the case of Bitcoin, a unit which is generally hated and feared by central banks and the establishment I expect they are not easily going to follow. This would be very good news for us bitcoiners and our possible tax omplications it it becomes recognised as a real currency The headlines say it all below. https://www.bbc.com/news/business-57507386 World Bank rejects El Salvador request for Bitcoin help https://www.reuters.com/business/finance/imf-sees-legal-economic-issues-with-el-salvador-bitcoin-move-2021-06-10/

The sticking point to that is that at least in the case of El Salvador, BTC is NOT their formal and official legal tender - their national currency is the US Dollar. El Salvador is just recognizing BTC as a permissible currency to use in lieu of the US$. Given that fine distinction, the Code of Federal Regulations and the Uniform Commercial Code does not apply and BTC does not have to be recognized as a currency.

El Salvador has established Bitcoin as legal tender here: You used the words "formal" and "official", but U.S. law does not use those words.

But do we have to wait until 7th September when it actually comes into effect for that definition to be accurate?  It's not technically legal tender yet.  So the US still has time to re-word the above as they please.

As per the core legal terminology, you are right. But there is a basic law understanding rule that would help here: Specific law always prevails over the generic law This means when there are two conflicting laws or two different interpretations of laws, the one that is more specific in the situation or to the case would be applicable. Here when the US has already classified it as Virtual Currency expressly, there is no way you can fight upon the fact that it is a foreign currency too. Because Courts would argue if the Senate wanted Bitcoin to be considered as a Foreign Currency it would have never brought a law to call it a virtual currency in the first place. But if it becomes a foreign currency then the FED gets the power to regulate its usage, the Federal Reserve is the forex custodian and makes laws relating to usage and holding of forex. On one side we might get relief from IRS but then FED could get an upper hand here.

Sure.  It will be funny to take notice regarding whether any jurisdictions are going to attempt to dance around some issues in terms of some seemingly long standing practices to recognize the legal tender of other countries, or if they are going to "clarify" in such a way that "makes exceptions" with bitcoin or other crypto currencies (not that I personally give any shits about any other crypto currencies - but surely some of that other nonsense might start to attempt to leech off of the coattails of bitcoin - and surely might end up serving as bitcoin attack vectors, at least from the perspective if there are beliefs that no other crypto (besides bitcoin) is really currently capable of withstanding a meaningful and sustained state attack - though ripple is currently surviving... strange that is). So, yeah, back to the point, whether nations feel a need to clarify or to change some of their legal tender law language in response to El Salvador does seem almost inevitable even if we might not currently know specifics and/or how countries might align on the question(s) (or potential questions) raised through these changing dynamics of bitcoin having its beginning (soon upcoming) official-dom in the legal tender arena.

I think they'll try to stall for time for as long as they can.  For the US in particular, it's conceivable they don't want to draw attention to to this comparatively small nation effectively forcing their hand and, in a political sense, flipping them the bird.  They also risk setting a precedent for others to follow, so they'll take some time to figure out what kind of 'damage control' they can build in.  A knee-jerk reaction won't serve them well.  Whatever the response is, I'm expecting it to be fairly subtle when it eventually comes.  Whether El Salvador really are doing this for economic reasons, or if it's more about the political manoeuvrings remains to be seen.  Something tells me it's the latter, though.  And, if so, bravo.  It's an inspired move.  The US couldn't have seen it coming.