The First Country Approves Bitcoin as Legal Tender as Bitcoin Locks in November Upgrade

Bitcoin gold in blue and red background

The second week of June marked a historic moment in cryptocurrency adoption as El Salvador became the first country to approve Bitcoin as legal tender. Elsewhere, Bitcoin miners globally agreed on an upgrade to the Bitcoin blockchain that should improve both privacy and smart contract flexibility. 

  • El Salvador approves Bitcoin as legal tender
  • Bitcoin miners lock-in Taproot upgrade for November
  • Twitter or BlueSky to integrate Bitcoin Lightning Network
  • ‘Doge’ meme sells for $4 million
  • G-20 countries, on average, move above pre-pandemic GDP levels
  • Big-ticket reports to watch out for this week

El Salvador approves Bitcoin as legal tender

Although announced during the June 4th Bitcoin Conference 2021, El Salvador officially passed a resolution last week to make Bitcoin legal tender in the country. The approval represents a historic moment for both Bitcoin and cryptocurrencies, as it is the first country to do so. 

The acceptance of Bitcoin as legal tender means the cryptocurrency is now recognized by law as a method for paying debts, taxes, and completing business. The President of El Salvador, Nayib Bukele, pushed hard for this reality which was finally accepted by El Salvador’s congress on Tuesday. The voting was decisive with 62 out of 84 legislators voting for approval, however, the President’s party makes up the majority of that congress.  

Many had believed stablecoins would be the most obvious choice when selecting a digital asset to become legal tender in a country. Stablecoins offer the familiarity of fiat with the digital flexibility and security of cryptocurrencies and, therefore, seems like a logical choice. But the selection of Bitcoin only illustrates its continued market-leading dominance.

The government will now move through an implementation process that will include the ‘bitcoinization’ of tax and financial policies. From an individual perspective, 70 percent of El Salvador’s population do not have a bank account, but over 50 percent have access to the Internet. The use and acceptance of Bitcoin will make it far easier for citizens to transfer and utilize funds.

For now, the US Dollar will remain crucial for the country and will be the reference currency when dealing with Bitcoin. Citizens will be able to freely trade between the two. However, analysts are now speculating that the move towards Bitcoin could eventually lead to a de-dollarization and a step away from the US Dollar.

The approval was met by applause from much of the cryptocurrency community, but others such as the investment bank JPMorgan questioned the move, with a representative stating: “As with the dollarization in the early-2000s, this move does not seem motivated by stability concerns but rather is growth orientated {…} But it is difficult to see any tangible economic benefits associated with adopting Bitcoin as the second form of legal tender, and it may imperil negotiations with the IMF.” El Salvador is currently in negotiations with the International Monetary Fund (IMF) for a $1 billion funding program to aid the countries $3.2 billion deficit. The move to adopt Bitcoin may create legal and financial consequences with the funding.

Undeterred by detractors, the President of El Salvador also tweeted last week the country may become more heavily involved in Bitcoin mining. With renewable solutions being sought for Bitcoin mining continuously, the President has proposed a Bitcoin mining facility run by geothermal electric power. The geographic setting of El Salvador means that volcanoes are prominent throughout the country. Volcanoes offer renewable geothermal heat that is in plentiful supply and may provide an efficient power source for a Bitcoin mining facility.

A tweet from Nayib Bukele about Bitcoin mining
President of El Salvador, Nayib Bukele, approves a plan for renewable Bitcoin mining utilizing the country’s geothermal energy.

Bitcoin Taproot upgrade confirmed for November

After a unanimous vote by Bitcoin miners last week the first-ever cryptocurrency is scheduled for a big upgrade in November. The upgrade, formally known as Taproot, will make smart contract features of the Bitcoin blockchain more compact, more private, and slightly more flexible than they currently are. This should improve Bitcoins privacy and help the network scale far beyond its current application basis and throughput levels.

The implementation of a soft fork upgrade to the Bitcoin network requires agreement from the majority of Bitcoin miners. Last weekend, Taproot officially ‘locked in’ to the Bitcoin blockchain with over 90% of blocks mined within one of Bitcoin’s difficulty periods signaling support for the upgrade. 

The upgrade will implement Schnorr digital signatures and also reduce the size and, therefore, price of smart contracts executed on the network. Multi-component transactions will be aggregated and, therefore, indistinguishable from simple peer-to-peer transactions. This will ultimately improve user’s privacy and improve congestion on the network. The application and update to smart contracts on the Bitcoin blockchain will encourage developers to build more decentralized applications (dApps) on the network. This has become prevalent on other blockchains like Ethereum.  

Fred Thield, CEO of cryptocurrency mining company Marathon Digital Holdings expressed the importance of the upgrade with Bitcoin’s smart contract ability. “The most important thing for Taproot is smart contracts. It’s already the primary driver of innovation on the Ethereum network. Smart contracts essentially give you the opportunity to really build applications and businesses on the blockchain”. 

Alyse Killen, Founder and Managing Partner of bitcoin-focused venture firm Stillmark spoke with CNBC regarding the update and expressed joy over the improvement. “Taproot matters, because it opens a breadth of opportunity for entrepreneurs interested in bitcoin’s utility”. 

First proposed back in 2018, the Taproot upgrade will activate in November 2021. The last upgrade for Bitcoin was implemented in 2017 and involved the execution of the Segregated Witness (SegWit) protocol. 

Twitter or BlueSky may integrate with Bitcoin’s Lightning Network

The CEO of Twitter and financial service company Square, Jack Dorsey, teased on Twitter last week that Bitcoin’s Lightning Network would be integrated with at least one of his businesses. One user on Twitter asked the entrepreneur to integrate the Lightning Network with either BlueSky or Twitter with Jack responding “Only a matter of time”. 

Whilst Twitter is a well-known social media platform, BlueSky is a decentralized social media platform that Dorsey has been working on since 2019. 

The Lightning Network is a layer-2 scaling solution for the Bitcoin blockchain. Built on top of the blockchain it allows users to set up parallel channels so that payments can be completed off the main network. It is currently implemented by applications such as Sphinx Chat and the payment provider Strike. Adopting it on Twitter or BlueSky could lead to micropayment capabilities.

While only speculating via Twitter, the move would not be a surprise as Dorsey is a big supporter of Bitcoin. Only recently did the CEO announce that Square Inc would be investing $5 million in the development of a renewable Bitcoin mining facility.  

‘Doge’ the famous Dogecoin Meme sells for $4 million

The distinctive Shiba Inu meme behind Dogecoin was sold last week as a non-fungible token (NFT). The auction for the meme was eventually closed at a staggering $4 million, making it the most expensive meme NFT ever to be sold. 

‘Doge’ was the name given to the famous Shiba Inu meme in Reddit that was then picked up and used for Dogecoin. Many cryptocurrency investors place the success of Dogecoin squarely at the feet of the famous meme. The meme has become one of the most iconic images on the internet. 

The real name of the Shiba Inu dog in the picture is Kabuso. It was her owner Atsuko Sato that first took the iconic picture and posted it to her blog back in 2010. Atsuko was still in possession of the original image until listing it last week. Atsuko listed the image for auction on Tuesday for three days through the auction site Zora.

After a frenzied bidding war, the image eventually sold for 1696.9 ETH, which on Friday was approximately $4 million.

The cryptocurrency token Dogecoin was originally created as a joke by two developers that met on Reddit. The coin holds many similarities with Bitcoin but has an unlimited supply and no real utility. After many years of being utilized for small payments, the coin exploded in popularity earlier this year taking the market cap into the top five of all cryptocurrency coins in circulation. 

Average GDP returns to pre-pandemic levels but with a noticeable split amongst G-20

G-20 countries, those that hold the most economic power in the world, have seen Gross Domestic Product (GDP) averages rise above pre-pandemic levels. GDP measures the monetary value of all goods and services sold by a specific country. Year-on-year growth expanded by 3.4% in the first quarter of 2021. 

However, the growth experienced over the last year has mainly been driven by China which saw an 18.3% growth over the year. The trend continued with a 0.6% increase during the first quarter of 2021. In comparison, the UK has seen a 6.1% decline annually and is still well below pre-pandemic levels. Negative growth returned during the first quarter of 2021 as the UK declined by 1.5%. Other European countries also fared badly due to the third wave of COVID-19 sweeping across nations earlier this year.

Although GDP is returning there is a clear divide between those countries thriving and those still trying to find their feet.  

Big-ticket reports to watch out for this week:

Tuesday – Reserve Bank of Australia Minutes, UK ILO Unemployment Rate, Bank of England Governor’s Speech, US Retail Sales (MoM)

Wednesday – China Retail Sales (YoY), UK Consumer Price Index, Bank of Canada CPI, US Building Permits Change, US Fed Interest Rate Decision, US FOMC Economic Projections, US Fed’s Monetary Policy Statement, US FOMC Press Conference

Thursday – New Zealand GDP (QoQ & YoY), Reserve Bank of Australia Governor’s Speech, Australia Unemployment Rate, Switzerland Interest Rate Decision, US Initial Jobless Claims 

Friday – Bank of Japan Interest Rate Decision 

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