However, the government will still be allowed to make payments using "electronic money." 91 members voted in favour of the reforms.
Furthermore, Ecuador will be introducing a national digital currency, which will operate in tandem with the US dollar, Ecuador's official currency. The currency will receive backing from the assets of Ecuador's central bank.
The creation of a state-backed digital currency controlled by the executive is a radical departure from the decentralised cryptocurrencies that have gained such popularity in recent years.
The National Assembly said in a statement that the new digital currency would provide a host of benefits to the nation's economy: "Electronic money will simulate the economy, it will be possible to attract more Ecquadorian citizens, especially those who do not have checking or savings accounts and credit cards alone."
The bill has now been passed to the desk of President Correa. Should it receive approval, businesses offering cryptocurrency services will have to halt certain operations or stop operating all together, since the bill bans "emission, production, initiation, falsifications, or any other type of simulation, and its circulation through any channel or way of representation," according to PanAm Post.
The amendments also include provisions for the confiscation of Bitcoin for those who violate the ban. Furthermore, businesses using banned digital currencies could face prosecution, while article 96 of the reform bans the circulation of currencies that have not received the approval of the Monetary and Financial Political Regulatory Committee.
Ecuador' biggest Bitcoin lobby group La Comunidad Bitcoin Ecuador, wrote an open letter to legislators urging caution with regard to Bitcoin regulation: "Ecuador, as a pioneer in the creation of a state-run digital currency, must use methodologies that respect fundamental rights. The digital currency system must be verifiable, and its code must be published as free software, to ensure the system's privacy through algorithms."
Ecuador's stance on Bitcoin stands in stark contrast to places such as tech friendly California, where governor Jerry brown recently signed an assembly bill giving Bitcoin the status of legal money.