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A Bitcoin Tale: An Economic Assessment of El Salvador and the Systematic Risk of Adopting Bitcoin as a Legal Tender

Persistent URL
Author(s)
Ziggas, Tyler
Date Issued
May 1, 2025
Abstract
This research paper analyzes the complex nature of Bitcoin and the potential economic disruption it could cause in a country. At the core of the analysis, we examine the fundamental principles and technological foundations of decentralized digital currencies, with a specific focus on Bitcoin. The paper investigates Bitcoin's utilization in an economic environment that predominantly relies on traditional currency, such as El Salvador, which became the first country to adopt Bitcoin as legal tender in September 2021. The central thesis of this research is: How has the adoption of Bitcoin as legal tender in El Salvador affected the country's economic stability, and what systematic risks does this adoption pose? The motive of this paper is to assess the dynamism between Bitcoin and traditional financial systems, exploring the challenges and opportunities presented by its integration into a dollarized economy. To reinforce the thesis, the paper incorporates a range of econometric tools, including economic bar graphs, payoff matrices, and Jacobian matrices. These quantitative methods help analyze the equilibrium between market behavior and economic indicators, further strengthening whether Bitcoin plays a prominent role in El Salvador’s unique economy. The insights from this paper will address two key questions: Could Bitcoin's adoption have transformative potential in the future, potentially driving innovation and financial inclusion? Or will it provoke systemic risks that might destabilize the country's economy, leading it into a financial debacle? Through this investigation, the paper will provide a comprehensive assessment of the implications of Bitcoin's legal tender status in El Salvador and its potential long-term effects on the country’s financial landscape.
Major
Economics
First Reader(s)
Nonnenmacher, Tomas W.
Other Reader(s)
Bianco, Timothy P.
Department
Business and Economics
Type of Publication
Senior Project Paper
File(s)
Thumbnail Image
Name

Tyler Ziggas 2025.pdf

Size

1.45 MB

Format

Adobe PDF

Checksum (MD5)

93ce9769618e38eecc484efe15c34f83