Bitcoin, as a Legal Tender?

With El Salvador declaring bitcoin as a legal tender, becoming the first nation to do so and Paraguay presumably looking to propose a bill for the same, later this year, is this the future of cryptocurrencies? Well, first let's know,

What does using bitcoin as a legal tender mean? 

Legal tender is anything recognized by law as a means to settle a debt or meet a financial obligation, including tax payments, contracts, and legal fines or damages. The national currency is legal tender in practically every country. Making bitcoin a legal tender would mean using it for trades and reserves, just like reserve notes such as $1, $2, or $5 are used in the US.

But why bitcoin as a legal tender might not be effective for bigger economies? 

Well, in the beginning, this concept was looked down upon primarily because countries like India and the States, already have good reserves and local currencies which are much more stable than cryptocurrencies like bitcoin, for instance.

Moreover, using crypto as an asset might yield better financial growth for big nations rather than using it as a tender. With the maximum number of bitcoins that can be mined being limited and no issues with their local currencies, the more the citizens buy bitcoin, the better economic boost will it provide to these countries in the long term. So it was advised better to invest in it than to trade in it.

So why did El Salvador declare it as a legal tender and how can it help the nation?

El Salvador being a small economic nation has two circulating currencies, one being the locally issued colons while the other, the US Dollar, out of which the latter is more popular and in-demand in the country. 

A few years back when the USD was seen as a reliable and rock currency they planned to add reserves in USD, basically "dollarizing" their country. 

After all, it was a global reserve currency and accepted by nations and central banks around the world. However, now with everything happening in Washington presently, bitcoin is turning out to be more stable than the USD, not in terms of conversion rates, but solely because it's just a decentralized currency, unlike USD, which can be highly manipulative. 

Unlike the dollar, the supply of Bitcoin today, next month, and 100 years from now can be accurately modeled in advance. This was also a step to mitigate the negative impacts of the central bank on the nation. Adopting Bitcoin as a tender might help them achieve economic stability as they will be independent of the USD and the changes or

Moreover, looking at El Salvador's economy, which is valued at 2,702.26 crores USD as of 2019, even if they can get a 1% share of the total bitcoin market value which is USD 653 billion, the growth will be massive. 

But in the havoc of global reserve currencies which are dictated by the government needs, will a decentralized one fit in?

It's for El Salvador to answer.