Presently, Bitcoin is considered by the U.S. government to be a "convertible virtual currency".
The term “virtual currency” refers to a medium of exchange that can operate like currency but does not have all the attributes of “real” currency, as defined in 31 CFR § 1010.100(m), including legal tender status.1515. CVC is a type of virtual currency that either has an equivalent value as currency, or acts as a substitute for currency, and is therefore a type of “value that substitutes for currency.”
(m) Currency. The coin and paper money of the United States or of any other country that is designated as legal tender and that circulates and is customarily used and accepted as a medium of exchange in the country of issuance. Currency includes U.S. silver certificates, U.S. notes and Federal Reserve notes. Currency also includes official foreign bank notes that are customarily used and accepted as a medium of exchange in a foreign country.
According to FinCEN guidance, if Bitcoin becomes legal tender in El Salvador and is used as a medium of exchange, it would no longer be classified as a "convertible virtual currency" or even "virtual currency". It would become a "real" currency.
That would result in a huge legal change in the treatment of Bitcoin. The laws and regulations that apply to it as a CVC would no longer apply. Instead, I believe that it would be treated as a foreign currency, with all the laws and regulations surrounding that.
I'm not an expert on foreign currency regulations, but I do know that one change would be that small amounts of a foreign currency can be spent or converted without being taxed. No more need to track every single time you spend or trade bitcoins.
