Six months in, El Salvador’s bitcoin gamble is crumbling

When El Salvador officially made Bitcoin legal tender in September 2021, José Bonilla was one of the first citizens to sign up for a government-backed digital wallet that lets anyone use the cryptocurrency. The 23-year-old Salvadoran, who runs a shoe store with his family in the tourist town of Concepción de Ataco, was looking forward to trying out the technology. He’d heard that it would reduce costs and speed up payments.
After a few days of overcoming technical glitches, Bonilla was up and running and accepting payments in Bitcoin from customers.

But the shine soon wore off. By February 2022, Bonilla’s list of complaints about Bitcoin was long: the only available Bitcoin ATM was too far away, the government helpline was slow, and the price was too volatile. One day, he lost a $25 transaction from a customer to technical issues and never heard back from the digital wallet’s customer service team. “I decided not to use it any more,” he said.

He’s not the only one. Six months since El Salvador’s Bitcoin Law came into effect, adoption of the cryptocurrency remains patchy. Even on “Bitcoin Beach,” a rugged strip of Salvadoran coastline that has become a mecca for crypto disciples, the transition has been challenging. When Rest of World visited shortly after the law came into force, some were still unsure about Bitcoin. Coconut vendor Dina Ponce said she was able to make more sales by expanding to accept digital payments for the first time, but she didn’t fully understand the technology, and the value of Bitcoin hadn’t risen enough to give her the savings she’d hoped for.

Other businesses around Bitcoin Beach said they’d given up on Bitcoin and reverted to accepting only cash. “We were losing money because of the way the currency loses value,” said 21-year-old Axel Medina, who helps his family run a surf school and restaurant. “It was difficult to maintain our business like that.”

When President Nayib Bukele first announced the Bitcoin law in June 2021, he made a grand promise to his citizens. Adopting Bitcoin, he said, would digitize the economy, decrease dependence on the U.S. dollar, lower remittance fees — which account for about 20% of the country’s gross domestic product — and drive investment. El Salvador could become the first country to prove the transformative power of cryptocurrency on a national scale.

It is difficult to get a full picture of the scope of Bitcoin adoption in the country. In January, the government endorsed a report that at least 4 million users — nearly the country’s entire population — had been verified as authentic users of the government’s wallet over the past several weeks. But in March, a survey released by the Chamber of Commerce and Industry of El Salvador reported that 86% of the businesses contacted said they had never conducted a transaction using Bitcoin.

Interviews with dozens of Salvadoran citizens, economists, and technology developers reveal cracks in the project. Since launching, the initiative has been plagued with technical glitches, while tensions have arisen from the mismatch between Bitcoin’s decentralized ethos and El Salvador’s authoritarian government.

As Bukele continues to double down on Bitcoin, his interest now appears to be less about getting everyday Salvadorans to adopt the cryptocurrency and more about addressing his administration’s economic troubles and boosting his own image.

“Why did he do this?” said Alex Gladstein, the chief strategy officer for the Human Rights Foundation and an advocate for global Bitcoin adoption. “To me it’s kind of obvious. He did it for self-interest and to get famous.”

El Salvador’s association with Bitcoin began in 2019 on Bitcoin Beach, in the town of El Zonte. That’s where an evangelical surfer named Mike Peterson teamed up with a local resident, Jorge Valenzuela, to transform the small coastal town into a circular economy built around the cryptocurrency.

Seeing potential for a nationwide application, President Bukele announced his Bitcoin Law at a cryptocurrency conference in Miami in June 2021. The law made El Salvador the first country to accept Bitcoin as legal tender and required businesses to accept it as payment.

“In El Salvador, we are trying to start the design of a country for the future,” Bukele proclaimed during his video message to the conference.

To lay the groundwork for the transition, the government spearheaded development of technology that would make it possible for citizens to buy and sell using Bitcoin, including a digital wallet called Chivo. (Chivo literally means “goat” in Spanish but is also Salvadoran slang for “cool.”) Users could use the Chivo Wallet to receive or send cryptocurrency funds — think Venmo or Paypal, but for Bitcoin. The government has refused to provide many details about the corporation that developed and owns this technology, but Rest of World has interviewed some of the private firms involved with the rollout. A U.S.-based cryptocurrency company, Athena Bitcoin, plays the largest role.

Rest of World met with Athena Bitcoin CEO Eric Gravengaard in the Insigne skyscraper, a towering hunk of glass and steel in the upscale neighborhood of San Benito, where he described how the company first got involved with El Salvador’s ambitious experiment.

Athena Bitcoin was originally focused on building Bitcoin ATMs, which let users exchange fiat currency for cryptocurrency or vice versa, in the U.S. In 2019, Gravengaard, who knew Bitcoin Beach founder Peterson through a mutual friend, offered to provide one for the project. He visited El Salvador in February 2020 to help install the machine, which was El Zonte’s first ATM of any description. Over the following months, he fielded calls from people in El Salvador who told him that they were driving to El Zonte from San Salvador, 50 kilometers away, to use the ATM. He decided to send a couple more.

Source: Rest Of World

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