Bitcoin has taken another step forward. Why is Bitcoin considered a legal currency?

On March 3, Lugano, a city in southern Switzerland, announced that it would use Bitcoin and USDT as legal tender and would work with Tether to build it into the Bitcoin capital of Europe. This news attracted widespread attention in the market. This is the second region to publicly reveal Bitcoin-related plans after El Salvador launched a plan to build a "Bitcoin City". What kind of "ambition" does Lugano have behind this?

As Bitcoin becomes more and more popular, digital assets are increasingly recognized and accepted by the mainstream world. Under this trend, which countries or cities have already designated Bitcoin as legal tender? What are the pros and cons of Bitcoin as legal tender?

Lugano’s Bitcoin Project

On March 4, 2022, the Swiss city of Lugano announced that Bitcoin, USDT and Swiss franc stablecoin LVGA will become the legal tender of Lugano, allowing citizens of the city to use the above crypto assets to pay for public services or taxes. The news was announced at an event called "Lugano's Plan ₿", which was jointly organized by the city of Lugano and crypto stablecoin provider Tether, and is also the "Bitcoin Plan (Plan ₿)" of the two parties. The cooperation plan between Lugano and Tether aims to create the city as a center for blockchain adoption in Europe.

The plan also promoted the launch of two funds, one of which is a 3 million Swiss franc (about 3.26 million US dollars) fund jointly established by Tether and the Lugano government to encourage the adoption of BTC, USDT and LVGA tokens by stores and businesses throughout the city. The second is an investment fund of up to 100 million Swiss francs, which will finance local blockchain startups and blockchain service providers in Lugano.

Lugano is the largest city in the Swiss canton of Ticino and the southernmost lakeside city in Switzerland bordering Italy. It is a famous tourist city and international financial market. The Bitcoin plan will enable more than 60,000 citizens of Lugano to use BTC, USDT and LVGA to pay all personal and corporate municipal taxes, such as public services, parking tickets, ID card and passport issuance fees, naturalization fees, etc.

Tether and the Lugano government plan to apply crypto payments in the community to demonstrate the use cases of blockchain. The city has united more than 200 stores and businesses to promote the adoption of Bitcoin. In addition, they will also overcome the scalability barriers of urban payments through the Bitcoin Lightning Network.

It is understood that Switzerland itself has always been one of the more crypto-friendly countries. Previously, Swissquote Bank, the country's largest online bank, announced plans to launch its own digital asset trading platform in 2022 to meet customers' growing demand for digital assets. Speaking of this cooperation plan, Tether's Chief Technology Officer Paolo Ardoino said, "After declaring Bitcoin as legal tender, El Salvador's GDP increased by 10% and tourism increased by 30%. Imagine what we can do in a city in the heart of Europe."

Bitcoin’s Progress as Legal Tender

Of course, Lugano is not the only city or region to introduce Bitcoin as legal tender. Prior to this, El Salvador was the only country in the world to make Bitcoin a legal tender. On June 9, 2021, El Salvador passed a bill to make Bitcoin a national legal tender, which officially came into effect on September 7 last year.

Compared to Lugano, El Salvador has adopted Bitcoin as its second official currency, while the Swiss franc remains the only legal currency in Lugano. Therefore, El Salvador's plans for Bitcoin are obviously more "radical". In addition, El Salvador also

At a Bitcoin conference, it was announced that the world's first "Bitcoin City" would be built in the country and raised funds by issuing Bitcoin bonds. According to the Minister of Finance of El Salvador, the country will issue the first Bitcoin sovereign bond from March 15 to 20.

Perhaps it is El Salvador’s “demonstration” role and remarkable progress that made Lugano willing to cooperate with Tether and announce the launch of its own Bitcoin plan. In addition to incorporating Bitcoin as legal tender, it will also strive to make it a center for blockchain adoption and the European Bitcoin capital, promoting the adoption of crypto assets such as Bitcoin.

For a sovereign country or region, accepting Bitcoin as legal tender is an extremely innovative and "bold" decision and move. Of course, Lugano is not the only region in the world to take action in this area. This year, California and Tonga have both intended or had the idea to establish Bitcoin as legal tender.

In March of this year, foreign media reported that the California Legislature proposed a bill that could establish Bitcoin as the state's legal currency. Previously, Republican state legislator Jordan Cunningham proposed Assembly Bill No. 2698 on February 19, which was later submitted to the committee. But before it can be passed, the constitution may need to be amended, which is a complicated process.

Tonga, a small Pacific nation, also said in March that it may adopt Bitcoin as legal tender in the second quarter of 2023 and conduct Bitcoin mining in the third quarter. Former Tongan MP Lord Fusitua disclosed the timetable for the country's Bitcoin adoption plan. The first step is remittances, the second step is legal tender, the third step is Bitcoin mining, and the fourth step is to transfer national finances to Bitcoin, effectively upgrading the country to the Bitcoin standard.

Why is Bitcoin legally recognized?

In the current Russian-Ukrainian conflict, Ukraine, which is in the eye of the storm, is already one of the top five countries in terms of cryptocurrency use, and has passed the new Ukrainian Virtual Assets Law, which legalizes cryptocurrencies such as Bitcoin in the country. The law legalizes crypto exchanges and cryptocurrencies. According to the Kyiv Post, Ukraine will open its cryptocurrency market to businesses and investors by 2022.

Why are more and more countries inclined to accept Bitcoin, and even legalize or make it a legal currency?

First, for some countries and regions, the decentralized and deregulated nature of Bitcoin can bring great convenience, and even maintain and "save" national sovereignty to a certain extent. Especially in some small and medium-sized countries facing the collapse of the legal currency system or the crisis of war, it is easy to turn to crypto assets as a "non-mainstream" currency. For example, Venezuela has become a hot spot for Bitcoin mining and crypto payments due to its long-term serious economic deterioration and increased inflation.

For example, in El Salvador, because 70% of the people do not have access to banking services, the country hopes to change the current situation of relying on cross-border remittances and attract foreign investment by establishing an ecological environment for the use of cryptocurrencies. Cross-border remittances account for 24% of GDP in El Salvador. Compared with traditional remittance channels, Bitcoin may reduce cross-border transaction costs and increase the disposable income of some people.

Secondly, as Bitcoin is promoted and popularized around the world, it is gradually becoming a global asset. Its reputation as "digital gold" and its acceptance by the mainstream world have deepened and changed the perception of Bitcoin in many countries. Legalizing Bitcoin can, to a certain extent, attract innovation in the blockchain field and attract more compliant traders.

However, on the other hand, due to the deregulation of Bitcoin and the high volatility of its price, it is more complicated and difficult for most countries to accept Bitcoin as a legal currency. Some critics believe that using Bitcoin as legal tender will bring risks to the stability of the national economic system. Secondly, Bitcoin transaction fees and transaction time are also a factor that needs to be considered. Of course, in recent years we have also seen the promotion and use of Lightning Network in some countries, which can play a certain supporting role in payment. International financial institutions such as the World Bank and the International Monetary Fund (IMF) have expressed concerns and even opposition to the adoption of Bitcoin as a national currency. Because privately issued tokens avoid the supervision of governments and central banks responsible for maintaining economic and monetary stability.

It is expected that in the future, the attitudes of various countries towards crypto assets will still be quite different, but as the trend of Bitcoin's "mainstreaming" evolves, "Bitcoin City" plans similar to those in El Salvador and Lugano may appear in more countries or cities. The adoption of Bitcoin in the mainstream world and the beginning of the regulation of crypto assets in many countries will have a profound impact on the future status and development of Bitcoin.