El Salvador and Bitcoin
On September 7, history was made when president Nayib Bukele announced that Bitcoin is now a legal tender in El Salvador, which means Bitcoin is now an official currency of the country, along with U.S dollars, which was El Salvador’s only official currency before this.
Is Bitcoin Legal Tender in El Salvador Now?
Chivo, which translates to Cool in their local language, is a digital wallet app that will allow Salvadorans to make transactions involving Bitcoin. To register on this app, users will be required to submit their Salvadorian ID. The app is also offering $30 worth of Bitcoin for new users only.
This new law passed back in June states that every economic agent in the country now must accept Bitcoin as a form of payment when a buyer is buying a product or service from them. However, it seems that sellers are not forced to accept Bitcoin, as users of the app can pay in Bitcoin or its equivalent amount in dollars, whatever the receiver prefers.
Along with the app, the government also installed 200 Automatic Teller Machines (ATMs) throughout the country, allowing the citizens of El Salvador to convert Bitcoins to dollars to withdraw or deposit without paying any commission that most crypto exchanges take.
Bitcoin as Legal Tender and its Chaotic Roll-out
Unfortunately, the launch of Bitcoin as a legal tender wasn’t as smooth as the president imagined it to be. There were a number of things that went wrong and made the rollout chaotic. Firstly, the government-backed digital wallet, Chivo, wasn’t available on several app stores even after the launch.
President Bukele took it to Twitter to address the issue and put pressure on making the application available. Shortly after, it did get available in app stores. However, the app’s server was quickly overwhelmed by the number of user registrations, though it wasn’t much, and failed to keep up. But shortly after, they increased server capacity and fixed the problem.
These were the problems that arose on the technical side of things, but on the other hand, the people of El Salvador weren’t very happy with the government’s decision and took it to the streets to protest against Bitcoin as a legal tender. 1000+ people were protesting, some of which even lit fireworks and a tire in front of the supreme court.
Its Impact on Bitcoin
Leading up to the launch, the government bought 400 Bitcoins worth $20 million, causing a massive surge in Bitcoin prices. Bitcoin prices went all-time high since May, reaching over $52,000. However, the surge was short-lived, as only a few hours later, the price came back down to $46,561.74. Seeing the irregularity in the market, the government bought another batch of 150 Bitcoin worth around $7 million.
However, Bitcoin is not the only thing that got affected. Even Ethereum and popular crypto exchanges like Coinbase also felt the effect of this massive volatility in the market in such a short period of time.
What is the Future of Bitcoin & Crypto in El Salvador?
As with anything, this huge step has its risks and possible rewards. Its success in El Salvador will not only encourage technology and open new opportunities, but it can also encourage other countries to embrace crypto. The risks, however, are not that easy to overlook.
The most common fear is how notoriously volatile Bitcoin is. Then there are risks of money laundering. Plus, the crypto tax laws are still not clear following this new big step. However, the biggest problem is the skepticism of people, and the lack of connectivity and internet in the country, which can prevent people from adopting this change even if they want to.