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In my previous article, I’ve tried to explain why adopting bitcoin as legal tender in El Salvador is a bad idea whose risks outweigh the benefits: poking Uncle Sam from a Latin American country whose official fiat currency is the US dollar, which has a 90% debt to GDP ratio, and whose 20th century history is filled with coups and even had a 13 year-old civil war cannot end well.
And this doesn’t mean that the people from El Salvador can’t or shouldn’t enjoy the financial sovereignty of bitcoin – after all, we are talking about a globally-available permissionless money system which doesn’t discriminate on any personal or national grounds. But the problem of declaring bitcoin legal tender is a lot more nuanced and concerns geopolitics. In a world where the US dollar is the global reserve currency and the US officials undertake every step to maintain its supremacy, a government needs to either have the proper military power to deter any foreign intervention or have strong allies who unconditionally defend its power structures.
Nation states do not enjoy the same freedom that individuals do. And even though heads of state have a certain degree of leeway and can legitimize their decisions in front of an elected constituency, they are also held accountable on an international level – either directly in organizations such as the United Nations, or indirectly via sanctions and embargoes (whose approval may involve the after-mentioned organizations, but without necessitating the participation of the sanctioned government).
While I really want to be proven wrong by real-life actions, I’m pretty pessimistic about nations states turning bitcoin into legal tender. In a world where the US dollar is becoming more competitive against the rising Chinese yuan, I don’t see the government which spends the largest amounts of money on its military conceding or at least stepping back to observe how the bitcoin experiment can work. So take everything that I write in this article with a grain of salt, be doubtful, and think critically.
Though I do my best to rely on historical facts and my limited knowledge as a political science/international relations graduate, I can be wrong and I’m ready to admit it when reality contradicts my expectations. However, in this article I want to answer the question “When are nation states ready to adopt bitcoin as legal tender?”.
Dr. Orangecoin or how I learned to stop worrying and love the bomb
In the post World War II global politics, the nuclear missiles guarantee nation states a seat at the table. Even if these weapons never get used, they guarantee an incredible amount of sovereignty and deterrence against foreign involvement. Nuclear weapons also open doors to negotiations and make even the mightiest of empires compromise on their agenda.
As of 2021, there are only 9 nations which have nuclear weapons: Russia, The United States of America, France, China, The United Kingdom, Pakistan, India, Israel, and North Korea. Among them, the only ones which have a weak national currency and therefore might be more incentivized to adopt bitcoin, we can distinguish Russia, Pakistan, India, Israel, and North Korea.
However, Israel is unlikely to act against the monetary domination interests of their allies. So the only real contenders remain Russia, Pakistan, India, and North Korea.
Can Russia adopt bitcoin as legal tender?
Russia has already made a series of contradictory and puzzling decisions in regards to bitcoin. As of June 2021, Russia officially recognizes BTC as property and store of value, but discourages its use as a currency. Also, government officials and their family members are legally forbidden from owning any type of foreign digital currencies (including bitcoin), as a way of preventing bribery and other forms of corruption (official source, translated source).
Also, Russia is currently undergoing a preliminary process to create a “digital ruble”: a central bank digital currency (CBDC) on which it has monopoly. So it’s unlikely that the Kremlin government considers making bitcoin a legal tender. On the other hand, there have been rumors about the Russian government using BTC as a reserve currency. Nothing was ever officially confirmed, but given the existing sanctions and the significant gold purchases it’s likely that there might be some holdings.
It’s also worth noting that in the last 10 years, the Russian ruble has lost a lot of value against the US dollar. Somebody who held US dollars since 2011 would have 3 times the purchasing power.
Unlike El Salvador, Russia is playing the geopolitical game more conservatively and seems to use deception and confusion as a way of ensuring privacy (tactics that are part of every military and statesman textbook since Machiavelli’s “The Prince”). The language/alphabet barrier also plays a significant role, so the Western media’s exposure to many official documents is limited.
Given the current state of affairs and Russia’s position, it’s unlikely to get an official announcement about bitcoin getting turned into a legal tender. But this doesn’t exclude the existence of parallel economies and a potential large governmental position.
Can Pakistan adopt bitcoin as legal tender?
In January 2021, news broke about Pakistan setting up government-funded bitcoin mining farms. In a country whose fiat currency (the Pakistani rupee) is rapidly losing value against the US dollar, this makes a lot of sense. In the last 10 years, the PKR has depreciated by almost 50%.
Interestingly, bitcoin is officially banned as a currency for both citizens and businesses. There is no official exchange operating in the country, but citizens use LocalBitcoins, Paxful and other peer to peer trading platforms.
On the other hand, citizens mine from home to get an extra source of revenue, since the electricity is affordable and mostly comes from renewable sources. This proves that there is actual demand for bitcoin as a currency – and the demographics also suggest that the average age is on the younger side. For more details, read Farooq Ahmed’s article.
The situation became a little more relaxed throughout the last year and is likely to shift more in favor of bitcoin. Unlike El Salvador, Pakistan is populous, is neighbored by a hostile country against which it will always want to gain an edge, and has the nuclear nukes to deter any kind of foreign intervention.
It’s not a free country and has all sorts of human rights violations which are recorded by Human Rights Watch, Freedom House, and Amnesty International. But given the country’s position and its adversarial approach to neighbors, as well as a lack of colonial influence from a G7 nation, I tend to believe that Pakistan finds itself in a very strong position to adopt bitcoin as legal tender – possibly one of the best in this article.
Can India adopt bitcoin as legal tender?
In March 2021, the Indian government proposed a bill that would effectively ban all activities involved in bitcoin: trading, holding, receiving, and mining. If passed, this law would make India stricter than even China in terms of punishments for bitcoiners.
At the same time, this type of approach is recurrent during hype cycles and there seems to be a lot of business development which brings prosperity into the country. From Coinbase to Coinmama, there are dozens of exchanges which offer support to Indian users.
The Indian rupee doesn’t do so well either – in the last 10 years, it lost half of its purchasing power against the US dollar. This is bad news for the world’s second most populous country, though the threat also opens up the door for some opportunities.
But there are two impediments that will deter India’s path to accepting bitcoin as legal tender: its colonial and post-colonial ties which extend to both Russia and NATO, as well as its gold culture. These ties can be turned around the become opportunities, but India seems a lot less likely to adopt an adversarial mindset against the hegemony of the US dollar.
And yet India scores higher than Pakistan in Freedom House‘s evaluation of individual political rights and civil liberties. According to Amnesty International, the country has a similar record in regards to human rights and freedom of expression. But when it comes to the protection of minorities (ethnic, religious, and sexual), India doesn’t do so well (according to Human Rights Watch). So why would it do better in terms of protecting the rights and property of a financial minority?
In some regards, India seems like a great place to make bitcoin legal tender. But then again, it seems less likely to break away from the financial status-quo than Pakistan and has fewer incentives to do so. It’s a more traditionalistic and conservative culture which has centuries-old relations and cultural ties with some nations.
To learn more about Bitcoin in India, listen to my interview with developer Rajarshi Maitra.
Can North Korea adopt bitcoin as legal tender?
Now this is a hard question to answer. On one hand, it makes sense for a rogue government which isn’t part of most international organizations and completely disregards international law to defy the global financial status-quo with a stateless and censorship-resistant currency like bitcoin. On the other hand, the Kim dynasty maintains a degree of control and Soviet-style cult of personality which isn’t philosophically compatible with something like Bitcoin.
So it makes sense for the regime from Pyongyang to mine bitcoins to circumvent economic sanctions. Otherwise, the regime doesn’t care much about the prosperity and well-being of its people and is much more concerned with power and control through propaganda. Allowing citizens to send and receive payments outside the borders without the government’s permission is completely against the polity’s interests.
And even though the North Korean won has lost more than 600% of its value against the US dollar since 2011, the declining national currency is still a way through which the dictator maintains the legitimacy of the totalitarian regime.
Maybe that some privileged elites are using bitcoins, but allowing such a revolutionary idea to exist and spread to the masses could overthrow the system – and this is against the interests of Kim Jong-Un and his family.
Yes, North Korea does have nuclear missiles and has used them to threaten other Western countries like the United States of America. They are a powerful negotiation instrument. But their purpose is not to offer freedom and sovereignty to the people.Thus, North Korea is the least likely country to adopt bitcoin as legal tender.
Wild Card: Iran
Iran is exactly the kind of country that would adopt bitcoin as legal tender. For decades, the Middle-Eastern state has undergone uranium enrichment research. Against all odds, heads of state have determined Western powers to make concessions and establish deals which prevent Iran from developing a nuclear program. But this game of threats has also manifested as a cause for economic sanctions which limited the country’s ability to export oil and restricted essential imports.
Since 2011, the Iranian rial has lost more than 300% of its value against the US dollar. And most of this depreciation happened not because the country is poor on resources and cannot engage into trade, but due to various sanctions and trade embargoes.
But in relation to bitcoin, the last few years have shown us two interesting yet discouraging phenomena: on one hand, exchanges that operate in countries that are friendly with the USA have frozen the funds of all Iranian users – they didn’t even get the chance to withdraw their coins within a given time frame, but instead had to wake up to the harsh reality that custodial solutions are vulnerable to geopolitical factors to which private companies tend to be compliant; on the other hand, the Iranian government has recently made significant efforts to ban mining, crack down on exchanges, and thus make it harder for citizens to become financially sovereign.
Iran might be another case of a top-down regime which wants to take full advantage of Bitcoin to avoid economic sanctions, but has no interest in allowing the people to be free. Bitcoin is merely an affair for government officials and their cronies. This doesn’t mean that there can’t and won’t be individuals who hold BTC and mine them secretly. But it significantly lowers the chances of officially turning bitcoin into a legal tender in the country.
Yet in the midst of these struggles to avoid foreign sanctions, one can only hope that the country’s leadership realizes that allowing citizens to be financially sovereign can bring a lot more prosperity and development for the country. But then again, the control may also be rooted in the religion and the political culture that Iran has had for centuries.
Why Bitcoin doesn’t care
Just like the internet and radio waves, Bitcoin is universal and state-agnostic. Its use doesn’t make a general characterization for intentions and purpose. It’s the sovereign user who decides how and for which purpose the money shall be spent.
Therefore, there will be plenty of governmental and corporate actors who will find desirable qualities in Bitcoin’s features. It doesn’t necessarily mean that they believe in the mission of the Bitcoin project – it only means that their incentives are aligned with the capabilities of this internet money system.
Ideally, Bitcoin should lead to more freedom and prosperity around the world. But while tyrants act as gatekeepers of money and want to control all on-ramps and off-ramps, it becomes difficult for bitcoin to be accepted for payments or else get exchanged for the local currency.
As the popularity of the Bitcoin network grows, we will see a lot of adoption on all fronts. But just because Iran surprisingly decides to declare bitcoin as legal tender, it doesn’t mean that the digital currency is under the control of the government from Tehran. If North Korea mines bitcoins to escape sanctions, it doesn’t mean that the project follows the domestic and international policies of the Kim dynasty. And if Russia joins the bitcoin standard, this doesn’t mean that Satoshi was a spy who worked for the KGB.
Every other country or corporation might as well do the same. The permissionless nature is part of the network’s beauty: anyone can use it for whichever purpose suits their needs. But this doesn’t mean that there will not be consequences – the public blockchain records all transactions on every sovereign node and there are sophisticated yet undeniable ways to prove that a certain transaction took place from a certain UTXO and to a given address. Once again, what governments make of this data is outside the scope of the Bitcoin network and its purpose to help humanity achieve more freedom.
To answer the initial question once again, nation states are ready to adopt bitcoin as a legal tender as soon as they are sovereign themselves and they possess the military and diplomatic means to withstand external pressure. Once a successful example gets presented to the rest of the world, others are very likely to follow.
On the other hand, fragility at the governmental level has the potential to cause more suffering than virtues when getting exposed to a Bitcoin standard. This is why I maintain my critical position on El Salvador and consider it was the wrong place at the wrong time. One approach is to strengthen your country and become more independent from external pressures. Another one is to speculate a moment of weakness from the hegemonic powers. At this point, the USA, China and Russia are just as powerful and influential as ever – and for all of the internal crises that they face, their military spending doesn’t suffer drastic negative adjustments.
I would love to be proven wrong, though. And in this unprecedented story of sovereignty and freedom, you never know what’s about to happen next.
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Thank you for such an in-depth analysis! I personally think, that it’s very unlikely for Bitcoin to be accepted as a legal tender in any of these countries. For now at least. CBDCs on the other hand seem like a bit more realistic development. However, I certainly wish to see Bitcoin become a legal tender in more and more countries.