Cast aside everything you thought you knew about cash and currency, and consider a world where Bitcoin is legal tender. Imagine stopping at your local coffee shop or pharmacy and paying for everything with Bitcoin simply by scanning a QR code with your phone.
In the Central American country of El Salvador, that's the goal. But the results so far have been mixed at best.
The Bitcoin Law, proposed by the country's divisive President Nayib Bukele, was passed by the Legislature in June and went into effect on September 7, 2021, making the country of 6.5 million people the first to give the cryptocurrency legal tender status. This puts Bitcoin on equal footing alongside the U.S. dollar, which became El Salvador's official currency 20 years ago.
As part of the rollout, Bukele's government launched its own national crypto wallet called "Chivo," Salvadoran slang for "cool." As an incentive, those who downloaded and registered the app were "gifted" $30.00 of Bitcoin from the government's newly acquired trust. While the average crypto enthusiast will likely see this as a step in the right direction for both the industry and the world’s leading cryptocurrency, the situation is not so clear-cut. Let’s take a closer look at what’s really going on in El Salvador.
Bitcoin in El Salvador: mixed perspectives
El Salvador’s Bitcoin Law is creating enthusiasm among the cryptocurrency community but on the ground, Salvadorans have mixed feelings about their government’s decision..
Shortly after the rollout, industry commentator Charles Hoskinson, founder of the digital currency Cardano, predicted that other countries would follow El Salvador's lead in adopting cryptocurrencies as legal tender. In October, BitMEX CEO Alexander Höptner supported the move, saying at least five other developing countries will follow suit by the end of 2022. In response to El Salvador’s news, Edward Snowden tweeted, “Latecomers may regret hesitating.”
Since the day the Bitcoin Law went into effect — when the coin was valued at just $46,777 — the value of Bitcoin has already increased about 30 percent. But this optimism is not shared by everyone. When I asked Salvadorans on Reddit about their country's adoption of Bitcoin, some of the responses reflected the frustration that spurred several thousand people to take the streets of the capital city San Salvador to protest the new law. A Bitcoin ATM was set on fire, and people held signs reading "NO AL BITCOIN" (No to Bitcoin) and "BUKELE DICTATOR.”
"My country is walking towards a dictatorship.”
(President Bukele is a divisive figure. At around the same time that Bitcoin became legal tender, Bukele’s government purged more than 100 judges. And earlier this year, his government stacked the Supreme Court with supporters who announced a rule that would allow Bukele run for another term in 2024.)
Speaking to Inverse via a Reddit comments section, user Snow75 questioned Bukele’s motives and expressed concerns about how Bitcoin would be used. In El Salvador, a country where many citizens don't have internet access and quality educational opportunities are limited, locals are increasingly being hit by a "wave of electronic scams." The adoption of the cryptocurrency "could be a recipe for disaster."
Snow75 continued: "My country is walking towards a dictatorship, government expenses are off the roof, and the President is gambling our money in Bitcoin. Poor, third-world countries aren't ideal for economic experiments. A rich country with spare money could roll a trial, but here, it's taking funds that could be spent on education, infrastructure, or health.”
The Chivo App explained
At the center of El Salvador’s shift to Bitcoin is Chivo, a government-controlled cryptocurrency wallet that you can download as an app on your phone (at least, in theory). Like any similar wallet, crypto is designed to let you send and collect cryptocurrency and also as a place to store your digital money.
The El Salvador government promoted Chivo as an easy way for Salvadorans abroad to send money back home, which is true in theory, but it’s also an easy way for the government to control people’s cash. As Nasdaq points out, it’s impossible to send Bitcoin from Chivo to another wallet, which isn’t exactly in line with the decentralized core concept of cryptocurrency.
"The first day was a bit of a joke.”
However, according to "the Bitcoin Boys," two crypto enthusiasts and investors based in El Salvador, the initial rollout of the Chivo app did not go smoothly.
"The first day, it was a bit of a joke,” they said. “For most people, it wasn't working at all." The app could not be found in the app stores of many Android phones. "Half the people we know weren't able to download it on the first day."
The fact that a large section of the population in El Salvador couldn’t access the Chivo app (and the free $30.00 in BTC that comes with it) highlights the risks of Bitcoin adoption in a developing country that requires crucial investment and growth. Some experts are worried that it could compound existing inequity.
Street vendors and "mom and pop" shops often don't have the resources or know-how to download, register, and access the Chivo app. "It might work for big businesses, but Bitcoin is too volatile for us to take it," the Bitcoin Boys say, adding that they were told by a street vendor selling flan, who pulled out an old phone ("shaped like a brick") that wouldn't even be compatible with Chivo in the first place.
Even for some users who are able to access and use Chivo, it still hasn’t been smooth sailing.
On September 7, the day of the rollout, the Bitcoin Boys went to a local Pizza Hut to test Chivo. But while the chain was prepared to accept the cryptocurrency, the app itself was down. "That's what happens when you try to develop a really complex financial app in three months," says Quinn.
But their experience wasn’t universal. Crypto enthusiast Aaron van Wirdum posted a photo to Twitter showing how he easily purchased breakfast at a McDonald’s in San Salvador by scanning a QR code with Chivo. Wirdum also posted a video of how he successfully withdrew $20.00 from a Chivo ATM.
Bitcoin ATMs are key part of the government’s adoption strategy. El Salvador now hosts the third-largest network of crypto ATMs (205 and growing), after the U.S. and Canada. Bukele’s government has also installed 50 Chivo ATMs in 10 cities across the U.S., including Los Angeles and Chicago, with the aim to make remittances to El Salvador cheaper and more accessible.
The Bitcoin Boys say Chivo gradually became more accessible and reliable. To test this, during our interview on September 20, Kevin messaged me his Chivo wallet address, and I sent $5.00 from my Coinbase account. He received the coins in less than five minutes. Traditionally, a transaction like this would have required finding a brick-and-mortar location or trustworthy website, have cost about $1.00 in fees and would have taken days to settle.
Sending Bitcoin home
Many of the 2.5 million Salvadorans living in the U.S. regularly send money back to friends and family living in El Salvador.
By adopting a non-traditional currency that coexists with the U.S. dollar but can be traded outside the international banking system. According to the Wall Street Journal, Bukele has gone so far as to promise that Salvadorans will be able to still move their money with Chico even if the country faces sanctions over corruption charges.
But there’s another reason Bukele cited for making Bitcoin legal tender. This funneling of cash from abroad is crucial for most of the country. In 2020, Salvadorans abroad sent back nearly $6 billion, or roughly 23% of the country’s GDP.
However, a large portion of that money went to remittance service providers like Western Union who facilitate these transfers. These fees can have a big impact on Salvadorans considering the average monthly remittance transfer is $195. For households that receive payments from relatives abroad, remittances account for 50 percent of their overall income.
Bukele estimated that remittance service providers will lose $400 million a year in commissions should Salvadorans adopt Bitcoin at scale — money that would go straight to residents instead.
”Bitcoin really does fix this,” Matt Hougan, chief investment officer at Bitwise Asset Management, recently told CNBC. “It won’t be overnight; 100 percent of remittances aren’t going to move to the Chivo app tomorrow... But the current fee levels of charge for remittances are going to prove unsustainable.”