Loans and bills would be denominated in the original currency. Bitcoin would only be used for transferring money. It would be converted back to the original currency upon receipt.

If the cryptocurrency infrastructure and exchanges become fast enough, the exchange rate of the cryptocurrency doesn't matter. Users would buy, transfer, and the recipient would sell the cryptocurrency at the other end in however long the technology allows.

This puts cryptocurrency in a weird spot as an investment because the exchange rate doesn't matter as much.

If PayPal announced that transactions on the PayPal network would be denominated in a finite amount of PayPalCoins, everyone would roll their eyes. Call it a cryptocurrency and add some blockchain technology, though, and for some reason it's an investment that's going to the moon.

Accepting it as legal tender doesn't mean it is what the loans are denominated in. Nobody sane would denominate loans in BitCoin. (There are loans denominated in BitCoin. The obvious syllogism applies.)

Yes of course, I'm still assuming USD denominated loans. However repayments may be done in BTC still, unless I'm misunderstanding what legal tender actually is. Even if I, as a creditor, convert my payments from BTC to USD as soon as I can there will be a volatility, right? I wouldn't dare to predict the impact scale but certainly enough to warrant consideration?

An exchange order can go through in microseconds

Exchanges already allow you to sell to them, for a guaranteed amount.

It is an existing feature.

But if I have a loan for a value that corresponds to about 1 bitcoin and $53, then doesn't legal tender mean I have to accept 1 bitcoin and $53 in exchange for it? The fact that tomorrow the value will be 1 bitcoin and $196 seems irrelevant.

And this is significant: debtors could repay their debts when bitcoins look like they will decrease in value with respect to the currency of denomination with an intent to harm the debt owner.

In the 19th century, there were dual currency systems with fluctuating exchange rates. I don't know anything about why they failed, just that they failed...

A loan can be denominated in a currency other than what you directly pay for it with. That just means somebody is automatically converting it for you. Financially, it's exactly the same as using your Visa to buy something in a foreign currency; you're paying in Euros for a loan denominated in dollars, and you'll pay it off in dollars.

The loan can't be denominated in multiple currencies at once, as you seem to be thinking of, because that would make the loan amount undefined unless the two currencies were directly pegged to each other.

You can have a loan of 100 dollars. Or you can have a loan of .01 BitCoin. You can pay either off in dollars or BitCoin. How much a given pile of currency will pay off depends on exchange rates. But that doesn't affect the loan itself.

I somewhat sarcastically said nobody would denominate a loan in BitCoin, but not sarcastically at all, nobody would ever denominate a loan in "either this much of one currency or this much of another" because that is seriously a no-win situation for the entity loaning money. Obviously the loanee would pay it off in whatever is cheaper.

If course they do. It's called a dual currency deposit. Suffice it to say that a bank would never accept these, but they can easily convince customers to do it since the published interest is much higher than a regular deposit.

they would be forced to accept it, however they would likely instantly convert it to a more stable currency at the time of payment through some processor.

there will likely be a small fee to them for the conversion of Bitcoin to say, USD, but I imagine it would be similar to accepting credit cards for payment? and so it would be worked into the prices.

This isn't inherent in the definition of legal tender, for example large denomination paper notes (100/200/500 euro) are often rejected for fraud risk despite being legal tender, and the latter two ceased printing because legal vendors so rarely accepted them meant that illegal activity was a high proportion of their use.

The keyword is “debt repayment”. You don’t owe a vendor money until you purchase a product. They are fully within their rights to refuse to sell you a product for any reason, including how you wish to pay for it. On the other hand, a bank cannot refuse a loan repayment because it is made in 500 euro bills.

Yes, I'd assume that creditors preferring USD would convert but that seems like a non trivial overhead for many creditors. The time between receiving payment and actually converting BTC to USD will surely result in a non-negligible balance difference?

Creditors pay, not debters to convert.

You can sell Bitcoin the second you receive it, I don't see it as a big risk.

It's no risk at all - providing one completely ignores the extreme volatility of Bitcoin here.

Quite a big ask really, no?

The more real people use it (AKA not bots), the less volatile it will become...