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September 19, 2021 03:04 am

What Happened After El Salvador Adopted Bitcoin as Legal Currency?

Foreign Policy magazine explores just what happened after El Salvador adopted bitcoin as legal currency and launched its official government-approved bitcoin wallet Chivo:Chivo launched just after midnight on Sept. 7. The system started failing at three a.m. Server capacity was increased, and app installations were not re-enabled until 11:30 a.m. Transactions failed through the day; customer service lines were jammed; Chivo ATMs ran out of cash. Shortly after ten a.m., the price of bitcoin crashed by $10,000 in three minutes... After protests on Sept. 6, more than 1,000 people marched on the Legislative Assembly on Sept. 7, jumping barriers placed early that morning to keep them out. One group of protestors set some tires on fire. Opposition politicians attended the day's session in "No Bitcoin" shirts. The protests were not against bitcoin itself. People protested the forced acceptance, the complete lack of transparency from the government, and the dysfunctional Chivo payment system — "people are against how things are being done in the name of bitcoin," local businessman Patrick Murray said.... [T]he Bitcoin Law, and the disastrous launch of Chivo, has frightened the bond markets; El Salvador's sovereign debt dropped almost five cents in a single day, ending Sept. 7 trading at 87.6 cents on the dollar. The World Bank and the International Monetary Fund are already reluctant to supply further funding because of the Bitcoin Law... Traders were reluctant to accept bitcoin. "I'd rather lose the sale," one trader told La Prensa Grafica. Others didn't trust money they couldn't hold in their hands. Street vendors may not even have phones. Many of their customers are illiterate. Some government offices didn't accept bitcoin payments. Transfers from Chivo to bank accounts were not reliable. The Chivo ATMs didn't work well — one machine had a reported three successful cash withdrawals in a day. Even transfer of bitcoins in and out of Chivo had problems... "El Salvador's Bitcoin Law Is a Farce," blares the headline on the article, saying El Salvador's system "doesn't work, the currency crashed, and the public hates it." "Fears of criminals bringing in dirty bitcoins and exchanging them for clean dollars, draining the $150 million trust that was set up as a buffer between bitcoins and dollars, have not come to pass — because Chivo doesn't work well enough."

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