On Tuesday, El Salvador became the first country in the world to accept bitcoin as a legal tender. The project, approved by the local parliament last June, was enthusiastically announced by President Nayib Bukele, a strong supporter of cryptocurrencies, but from day one it had technical problems and incidents, which resulted in a temporary interruption of the service and , on Tuesday evening, contributed to a severe drop in bitcoin’s value.
The El Salvador project envisages that bitcoin will join the dollar as the country’s legal currency, and that it can be used to make purchases and accumulate savings. The adoption of cryptocurrency in El Salvador is considered an innovative experiment and a major step forward by cryptocurrency investors, and according to President Bukele it will bring benefits and advantages to the citizens of one of the poorest countries in Latin America. However, many experts are of the opposite opinion: according to the International Monetary Fund (IMF), the adoption of bitcoin by El Salvador would be a risky and potentially dangerous move.
Above all, among the population the adoption of bitcoin is viewed with considerable distrust: many Salvadorans fear that the volatility of cryptocurrency could affect their savings, and according to surveys, two thirds of the population would like to abolish the law that sanctioned the adoption of bitcoin. . In San Salvador, the state capital, there were even some protests against President Bukele’s decision: on Tuesday, a thousand people gathered in various parts of the city to demand the abolition of the measure.
Adding to the concerns was the fact that the first day of bitcoin as a fiat currency had a lot of problems.
From Tuesday, all citizens of El Salvador can download on their smartphone “Chivo Wallet”, an app developed by the government (“chivo” means “cool” in local slang) that already contains the equivalent of 30 dollars in bitcoin loaded. , to entice you to shop with cryptocurrency. The government has also installed 200 special “Chivo” ATMs, which allow you to insert dollars and receive bitcoins in exchange on your app. To start the project, the government had also bought 400 bitcoins and created a $ 150 million fund at the state bank Banco de Desarrollo de la Republica de El Salvador to be used as collateral.
– Read also: What does it mean that bitcoin is legal tender in El Salvador
But on Tuesday, as Bukele wrote on Twitter (where he is very active) that his country was standing “Making history”, the inauguration of bitcoin as a fiat currency had numerous problems. The Chivo Wallet app hasn’t been available for several hours for neither Apple’s nor Huawei’s smartphones (and is only available on a few Android smartphones). At the same time, the high number of subscription requests and transactions forced the government to temporarily stop all services in order to increase the load capacity of the servers.
On the markets, which are watching the El Salvador experiment very carefully, these technical problems have caused some concern, and the value of bitcoin, which had been on the rise for several weeks thanks to the enthusiasm for Bukele’s project, is collapsed. From a high of over $ 52,000 on Monday, it fell to around $ 45,000 on Tuesday, only to recover by a few percentage points, while still remaining well below the value of the day before.
The problems began to slowly resolve over the course of the day and Bukele, also on Twitter, posted several testimonials from people paying for their bitcoin purchases. Judging by what has been written in the newspapers and by Bukele’s testimonies, for now it is mainly international chains such as McDonald’s and Starbucks that accept cryptocurrency payments.
Just walked into a McDonald’s in San Salvador to see if I could pay for my breakfast with bitcoin, tbh fully expecting to be told no.
But low and behold, they printed a ticket with QR that took me to a webpage with Lightning invoice, and now I’m enjoying my desayuno traditional! pic.twitter.com/NYCkMNbv7U
— Aaron van Wirdum (@AaronvanW) September 7, 2021
However, many economists and international bodies remain skeptical about El Salvador’s adoption of bitcoin. The International Monetary Fund (with which the government is in talks to obtain a billion dollar loan) in July published an article in which, without mentioning El Salvador, he had judged the adoption of cryptocurrencies by a state as a “strong risk to macro-financial stability, financial integrity, consumer protection and for the environment».
The main factor, as Kristalina Georgieva, the Fund’s director recently said, is the instability of bitcoin: «How do you know how much taxes are collected if bitcoin goes up and then down? How are expenses planned? You will remember that in April bitcoin exceeded $ 65,000 in value and then it collapsed by almost half. This is a problem that the Ministry of Finance will have to manage, and it is not an easy problem ». The World Bank has also been skeptical of the El Salvador project, and has refused its request to help the country in development. Several analysts also pointed out the risk that El Salvador could become a center for money laundering.
Some studies have also disproved one of Bukele’s main benefits of bitcoin adoption, namely the savings citizens could get when receiving remittances from abroad. More than a quarter of El Salvador’s GDP is made up of remittances sent by Salvadorans residing abroad, who nevertheless pay hefty commissions to transfer the money: in some cases, 20 percent of the sum. According to Bukele, using bitcoin to send remittances rather than traditional intermediaries would save citizens $ 400 million a year. However, this estimate has been contested by various studies: in some cases by reducing the amount of savings (it would be 170 million per year according to the World Bank) and in others by canceling them altogether (according to a study of Johns Hopkins University, using bitcoin for remittances from abroad would involve higher costs than traditional methods).
El Salvador President Nayib Bukele (ANSA / EPA / Wilfredo Lara)
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Another problem concerns the fact that the reception by the population was cold. According to a survey, two thirds of Salvadorans are against the law. Even more worrying, perhaps, is the fact that there is little awareness among the population of the risks and benefits of handling bitcoin. Only 4.8 percent of the more than 1,200 respondents were able to accurately say that bitcoin is a cryptocurrency, while 20 percent said they don’t know what it is. “We don’t know the currency. We don’t know where it comes from. We don’t know if it will bring us profits or losses. We don’t know anything “, he said a merchant from San Salvador a Reuters.
Among those with clearer ideas, the main concern remains the volatility of bitcoin. Yesterday’s collapse was an example: the 400 bitcoins bought by the government, which until Monday were worth more than 21 million dollars, two days later are worth 18. However, President Bukele remains very convinced of his project: on Tuesday he announced on Twitter that his government took advantage of the collapse in the value of the cryptocurrency, and that it bought another 150 bitcoins at a discount price.
Buying the dip ????
150 new coins added.#BitcoinDay #BTC????????
– Are You Watching ???????? (@b) September 7, 2021
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