Bitcoin Is Legal Tender in El Salvador, Here’s How It’s Going

[Hydrogen]

Bitcoin has been legal tender in El Salvador since September 2021. It’s a bold financial experiment—so how’s that going? Data based on a survey by the National Bureau of Economic Research can help us understand how the process of Bitcoin adoption is going for everyday people.

The results show that after the initial big push from the government of El Salvador to encourage its citizens to begin using this new financial system, enthusiasm and adoption are lackluster. Adoption in most key metrics has atrophied, and there’s little momentum.

Background on Bitcoin in El Salvador

El Salvador’s currency since 2001 has been the US dollar, which makes them completely dependent on the United States to formulate their monetary policy. In September 2021, El Salvador became the first country in the world to make Bitcoin legal tender by passing the Bitcoin Law which required all economic agents to accept Bitcoin for all payments.

To facilitate this new system, the Salvadoran government also launched an app called the “Chivo Wallet,” which allows users to digitally trade both Bitcoin and dollars over the Lightning Network, a layer 2 solution for quick and cheap peer-to-peer payments using the Bitcoin blockchain network as the foundation. To backstop this new system, the El Salvadoran government has been buying Bitcoin on the market and holding it in reserve to create a liquidity pool for exchanging US dollars to Bitcoin and vice versa.

The government created a $30 incentive available to anyone who downloads the app and enrolls. Keep in mind that $30 is a decent amount of money for many citizens, and is equal to approximately 0.7% of per capita annual income in El Salvador.

Data Shows Adoption Is Low and Stalled



https://i.imgur.com/f9Hjxrh.jpg

Bitcoin’s use as legal tender and its associated rollout in El Salvador isn’t going as well as they hoped it would go. Although many El Salvadorans have a smartphone with internet access, less than 60% of them downloaded the Chivo Wallet required to participate. Less than 40% of citizens who downloaded the app continued to use it after claiming their $30 bonus incentive.



https://i.imgur.com/HyAZS2e.jpg

All businesses were required to begin accepting payments in Bitcoin but that has not happened. Only 20% of companies reported accepting Bitcoin as a form of payment and most of them were large organizations. Out of all sales, only 5% were conducted in Bitcoin and most transactions were converted to dollars within the Chivo Wallet upon receipt of payment.

Chivo App



https://i.imgur.com/EjEVvGp.jpg

The Chivo Wallet application was created by the El Salvadoran government to facilitate the adoption of their new monetary policies. The Chivo Wallet has been plagued with issues and has therefore had a mixture of effects on the roll-out.

When it first launched, there were problems with registration and the identity verification process. Because of the $30 government incentive, there were many instances of fraud, identity theft, and phishing attacks with people attempting to claim the $30 incentive for others.

The survey reveals that 68% of people know about the existence of the app and of those 78% of those who had heard of it downloaded or attempted to download it with the help of family or friends. The most common way they learned about the app was through social media, then by television and radio, followed by the news, and lastly friends and family. Only 40% continued to use the app after claiming their $30 incentive.

Over 21% of respondents knew about Chivo Wallet but did not attempt to download it. The most important reason reported was that users prefer to use cash. This was followed by trust issues—respondents did not trust the system or Bitcoin itself. The fourth most frequent reason mentioned was not owning a phone with the internet, followed by the technology being complicated.

When El Salvadorans do use the Chivo Wallet, they tend to transact in US dollars because the volatility of Bitcoin is seen as a liability to them. A fluctuation of several dollars might mean they cannot afford to eat the next day or afford transportation to work.

Anecdotal evidence suggests that the app is used by a subset of the population like street vendors as a cash replacement because it’s convenient for small peer-to-peer payments. This functionality is actually what is most used within the Chivo Wallet because you can use the app like Venmo and quickly send US dollars from person to person without any exposure to Bitcoin.

Lack of Trust & Privacy Are Deterrents



https://i.imgur.com/v3YlBQC.jpg

Going from the mindset of a cash economy where all transactions are essentially anonymous to an environment in which every financial transaction is now under the guise of the federal government is a big switch that many citizens were not ready to make.

When you download the Chivo Wallet, you have to complete an identity verification process commonly referred to in the industry as Know Your Customer or KYC. This is a common practice when onboarding into many cryptocurrency exchanges. Because of this process, the government can track and trace every transaction that happens using the Chivo Wallet. Opportunities for surveillance are another critique that people reported in the survey when deciding not to participate citing they didn’t trust the system or the technology.

Failure to Capture Remittance Market



https://i.imgur.com/1TsCks3.jpg

A major use case lauded by supporters is the amount of money that would stay in the hands of El Salvadorans rather than money gram companies. Remittances account for 20% of El Salvador’s GDP.

However, the study shows that only 3% of people reported receiving remittances in Bitcoin and only 8% in US dollars using the Chivo Wallet. This is in line with the El Salvadoran Central Bank’s data which stated that in 2022 only 1.6% of remittances were sent through a digital wallet.

Silver Linings

About 70% of the population of El Salvador is unbanked, meaning they don’t maintain a regular bank account or have access to typical banking services. Allowing everyone with a smartphone to access the Chivo Wallet opens up new avenues of access and services for a large swath of the population that has never had these options before.

Sometimes it could take an hour or more on a bus to visit a bank on their day off to cash their checks. Workers can now receive their paychecks daily or weekly without having to visit a bank. The Chivo Wallet has two accounts, one for Bitcoin and the other for US dollars. They can transact in Bitcoin or dollars and anyone else with the Chivo wallet app can receive Bitcoin or dollars.

For many El Salvadorans, this is the first time they have encountered the ability to have banking services like a savings account. Many report using the Bitcoin account as their savings account and their US dollar account as their checking account. Increasing access to banking services and financial inclusion is one major positive outcome of this policy shift.

Lessons Learned



https://i.imgur.com/4mfAJiv.jpg

The adoption of Bitcoin as legal tender in El Salvador hasn’t reached critical mass for a variety of cultural and administrative reasons. These results are despite one of the benefits lauded of the Chivo Wallet was enabling contactless payments during COVID-19. A major hiccup was that the government’s top down decision surprised and confused the population with little warning which only exacerbated issues with their roll out.

El Salvadorans are accustomed to an anonymous cash economy expressed in US dollars and many don’t trust the new technology, especially after a botched launch with many technical issues with the Chivo Wallet. Many people were enticed to participate only to claim the free money reward and then abandoned the program. The lack of privacy or trust in the system and the price volatility of Bitcoin are two other deterrents to participating.

In a country that is highly unbanked, the ability to include more people into the financial system and reduce friction for workers getting paid is a major benefit that should be acknowledged despite the clunkiness of the approach. The Bitcoin experiment in El Salvador is a financial exploration that we can all learn from. We’ll be watching closely.


https://www.howtogeek.com/801982/bitcoin-is-legal-tender-in-el-salvador-heres-how-its-going/

....


The most statistically comprehensive breakdown I've seen on el salvador's campaign of bitcoin adoption.

All of the data is collected from economic surveys, which are not so different from political polls. Recently it was revealed that the sample size for twitters bot statistics was based on polling/surveys of 100 users which goes to show how modern day surveys and polls may not always be the most reliable sources of information.

The survey in question polled 846 men and 954 women for a total sample size of 1800.



https://i.ibb.co/JBrxCt6/sample.jpg

The strangest thing about the collected data is the el salvadoran public's claimed distrust of the government and state technology roll outs like chivo wallet. Shouldn't they be happy the government is taking steps to save them?

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[Don Pedro Dinero]

I imagine that we all had very high expectations in this respect, but on reflection, El Salvador does not seem to be a country where the population in general is massively adapted to new technologies, so it is normal that bitcoin adoption is slower despite being legal tender. If we add to that the volatility and the fact that the price has not gone as well as many of us expected, I think it is normal for things to be slow.

Regarding the Chivo wallet downloads, I think this has already been discussed in another thread. It is normal for them to decrease, as the population of El Salvador is finite and once practically everyone has downloaded the APP, it is normal for downloads to decrease.

[arallmuus]

but on reflection, El Salvador does not seem to be a country where the population in general is massively adapted to new technologies

It wont be on any other countries either, most people will not be willing to accept that 'nonsense' changes as they totally have no clue about bitcoin. We are literally switching from your usual cash to a 'digital money', yes I use the word digital money because thats how the average joe see bitcoin as. Probably it could last for atleast 5 years before the whole country actually switch to bitcoin or maintain atleast 50% acceptance

[Lanatsa]

but on reflection, El Salvador does not seem to be a country where the population in general is massively adapted to new technologies

It wont be on any other countries either, most people will not be willing to accept that 'nonsense' changes as they totally have no clue about bitcoin. We are literally switching from your usual cash to a 'digital money', yes I use the word digital money because thats how the average joe see bitcoin as. Probably it could last for atleast 5 years before the whole country actually switch to bitcoin or maintain atleast 50% acceptance

Thats why its really important for some Leaders/President on at least having educated into those people or citizens that will really be aware on what it is so that if ever there are major changes or adoption or integration

then they wont really be raising up questions into their mind which would be likely the case to happen.You cant really expect that everyone would really be ending up on having a good grasp on big change

specially on a new payment system.Some been saying that El salvador had failed on this one without even minding or looking back that we arent even on a year yet after its acceptance.

[Dunamisx]

Some been saying that El salvador had failed on this one without even minding or looking back that we arent even on a year yet after its acceptance.

I'd rather say maybe they have forgotten that bitcoin is a currency and not a Ponzi scheme of get rich quick, in less than a year all eyes are on El-Savador's adoption to see it fail which will never be possible, if El-Savador itself does not see bitcoin adoption as a failure on their end then believe me whatever news out there are just fallacies, El-Savador even buy about 500 worth of bitcoins recently amidst the dip just to save up with the investment and take it advantage, sooner or later the world will got to realize the beauty in El-Savador's bitcoin adoption.

[Wind_FURY]

I imagine that we all had very high expectations in this respect, but on reflection, El Salvador does not seem to be a country where the population in general is massively adapted to new technologies, so it is normal that bitcoin adoption is slower despite being legal tender. If we add to that the volatility and the fact that the price has not gone as well as many of us expected, I think it is normal for things to be slow.

Regarding the Chivo wallet downloads, I think this has already been discussed in another thread. It is normal for them to decrease, as the population of El Salvador is finite and once practically everyone has downloaded the APP, it is normal for downloads to decrease.

Or simply, many of them don't need it. The situation of an ordinary El Salvadorian person might be not the same as the situation of Mr. Heroine Dealer in the Dark Market who's looking for the most efficient way to transact anonymously with his clients. Plus Bitcoin might not be for mere personal finance. It might be something for much more.

[Leviathan.007]

Regarding accepting and legalizing bitcoin in El Salvador some people thought it was too soon and risky for the government to start accepting bitcoin and this can be a dangerous decision for them. Still, as a part of adoption, they take the risk of acting bitcoin as a payment method however as you mentioned on the chart compared to cash and credit cards bitcoin has a long road ahead to become the most used currency and lack of knowledge from many people can be one big reason for this.

[hugeblack]

I do not think that this data will be good for a study on the adoption of bitcoin in undeveloped countries due to the short period, the turmoil that currently prevails in the world, the decline in the price of Bitcoin, and the attempt of some countries to thwart this transformation.

For me, the continued adoption of Bitcoin and the non-stop acceptance of it (even by 5%) is a profitable thing. Perhaps one of the reasons for the lack of expanded adoption is that Bitcoin is considered an investment rather than a way to make daily payments.

There is a point outside the formulations, which is the lack of legal currency in El Salvador, and therefore the citizens’ impact on inflation will not be like the impact of other countries in which the currency collapses on a daily basis.

[laredo7mm]

I imagine that we all had very high expectations in this respect, but on reflection, El Salvador does not seem to be a country where the population in general is massively adapted to new technologies, so it is normal that bitcoin adoption is slower despite being legal tender. If we add to that the volatility and the fact that the price has not gone as well as many of us expected, I think it is normal for things to be slow.

Regarding the Chivo wallet downloads, I think this has already been discussed in another thread. It is normal for them to decrease, as the population of El Salvador is finite and once practically everyone has downloaded the APP, it is normal for downloads to decrease.

After hearing the name El Salvador the only thing that came to my mind were guns, drugs, and murder. Govt offers some rewards for Chivo wallet users so people download that. I think most of them didn't even use that app later. A dangerous place is full of drug and arms dealers it is normal that the society is not that developed and ready for mass adoption of crypto.

I think crypto has been already used in that country for illegal activities. Still, if the country can really offer some benefits of using crypto then general people could be attracted to use it to run their business.

[arallmuus]

-snip

Thats why its really important for some Leaders/President on at least having educated into those people or citizens that will really be aware on what it is so that if ever there are major changes or adoption or integration

then they wont really be raising up questions into their mind which would be likely the case to happen.You cant really expect that everyone would really be ending up on having a good grasp on big change

The fact is that there will always be a fraction of people that is not willing to accept changes. People are so used to their current way of life therefore unnecessary changes like that wont be accepted. Yeah I used the word 'unnecessary' because even without bitcoin, they could always choose to accept cash therefore it might take years before atleast 50% of the citizen choose bitcoin instead of their usual cash

[aoluain]

but on reflection, El Salvador does not seem to be a country where the population in general is massively adapted to new technologies

It wont be on any other countries either, most people will not be willing to accept that 'nonsense' changes as they totally have no clue about bitcoin. We are literally switching from your usual cash to a 'digital money', yes I use the word digital money because thats how the average joe see bitcoin as. Probably it could last for atleast 5 years before the whole country actually switch to bitcoin or maintain atleast 50% acceptance

Thats why its really important for some Leaders/President on at least having educated into those people or citizens that will really be aware on what it is so that if ever there are major changes or adoption or integration

then they wont really be raising up questions into their mind which would be likely the case to happen.You cant really expect that everyone would really be ending up on having a good grasp on big change

specially on a new payment system.Some been saying that El salvador had failed on this one without even minding or looking back that we arent even on a year yet after its acceptance.

Part of the problem, probably a very big part of the problem is that
a lot of people dont trust the government. When te government are
endorsing everyone to use Bitcoin they are not going to trust it
which is crazy! those people would rather distrust the government
that educate themselves.

If we fast forward to 2024 and the months following after the halving
when Bitcoin will enter its bull run, there are questions to be asked.

How will the world feel then about El Salvadors Bitcoin adoption?

How will the citizens who doubted their government feel when they
realise they missed out on growing an investment however smallit
might have been?

So many people are ficussed on the present when they really should
be focussing on the future.

[Quidat]

-snip

Thats why its really important for some Leaders/President on at least having educated into those people or citizens that will really be aware on what it is so that if ever there are major changes or adoption or integration

then they wont really be raising up questions into their mind which would be likely the case to happen.You cant really expect that everyone would really be ending up on having a good grasp on big change

The fact is that there will always be a fraction of people that is not willing to accept changes. People are so used to their current way of life therefore unnecessary changes like that wont be accepted. Yeah I used the word 'unnecessary' because even without bitcoin, they could always choose to accept cash therefore it might take years before atleast 50% of the citizen choose bitcoin instead of their usual cash

Which its really important on at least educating people on a said country or place before making some official or making it a legal tender on which it would be at least that effective or being considered
where people will be making use of it or engaging through it since they are fully aware on what it is compared into a situation where they dont even know on what it is all about.
You wont really be get surprised with these kind of result where it had failed or not being recognized that much despite on making it as a legal tender.

[The Sceptical Chymist]

Thanks for posting this article, Hydrogen.  I remember a couple of years ago watching the Dash team/devs try to introduce Dash into the economy of El Salvador (if I'm not mistaken; I know it was one of the S. American countries), and if you took what they showed in their Youtube videos at face value, you would have thought everyone there was spending Dash as though it were the national currency.

I figured that was all hype, and I also suspected that this experiment with bitcoin in El Salvador would have about the same results you presented.  That isn't to give a big "I told ya so" to anyone, but I mean, come on....why in the world would a country with serious economic problems want to start using a cryptocurrency that's as volatile as bitcoin for their everyday needs?  The answer is the same for any country: they wouldn't, not unless it was the absolute last resort, and it isn't.  

This has been the problem with bitcoin adoption all along, whether people are honest about it or not.  Look how hard bitcoin has fallen in the past month and a half or so.  No one in their right mind is going to trade their local currency--no matter how inflated it's getting--for a super-risky, notoriously volatile asset like bitcoin.  They can trade their local currency for US dollars instead, or some other stable currency.  That's the smart play, and that's why the data show what they show.

Part of the problem, probably a very big part of the problem is that
a lot of people dont trust the government. When te government are
endorsing everyone to use Bitcoin they are not going to trust it
which is crazy! those people would rather distrust the government
that educate themselves.

I fully understand distrust of government, but there's no getting around the volatility issue, and I think that's the primary stumbling block.  And if bitcoin wasn't as volatile?  People wouldn't care about it so much  Someone please tell me I'm wrong, because I'm 99.999% sure I'm not.

[niceli]

This may not be "working" in the sense that people may not be adopting quickly, but it is not an overnight thing. It will take years, even maybe a decade if you want to turn a whole nation into using an alternative currency when the US dollar is right there as an option. I am not saying that it is impossible, but it is not that easy neither. However, the government itself has some investments as well if I am not remembering wrong, which means that it shouldn't be really that difficult to make a profit as a whole nation. The government doesn't have its own money, they take taxes from the people, and used that money to buy bitcoin, meaning if they win, then the whole nation wins.

[goaldigger]

This may not be "working" in the sense that people may not be adopting quickly, but it is not an overnight thing. It will take years, even maybe a decade if you want to turn a whole nation into using an alternative currency when the US dollar is right there as an option. I am not saying that it is impossible, but it is not that easy neither. However, the government itself has some investments as well if I am not remembering wrong, which means that it shouldn't be really that difficult to make a profit as a whole nation. The government doesn't have its own money, they take taxes from the people, and used that money to buy bitcoin, meaning if they win, then the whole nation wins.

Bitcoin is just new to them but as you can see on the numbers, it’s slowly catching up especially with those card transactions, People in El Salvador already acknowledge Bitcoin and that is the most important thing, later on they will get used to it and that numbers will continue to rise. Cash is still the main money to use for a day to day basis, and with bitcoin, this might be their backup investment which I think is pretty normal considering the value of Bitcoin. This will always take time, Bitcoin will have its own time in the future better to wait for it and be ready.

[aoluain]

Thanks for posting this article, Hydrogen.  I remember a couple of years ago watching the Dash team/devs try to introduce Dash into the economy of El Salvador (if I'm not mistaken; I know it was one of the S. American countries), and if you took what they showed in their Youtube videos at face value, you would have thought everyone there was spending Dash as though it were the national currency.

I figured that was all hype, and I also suspected that this experiment with bitcoin in El Salvador would have about the same results you presented.  That isn't to give a big "I told ya so" to anyone, but I mean, come on....why in the world would a country with serious economic problems want to start using a cryptocurrency that's as volatile as bitcoin for their everyday needs?  The answer is the same for any country: they wouldn't, not unless it was the absolute last resort, and it isn't.  

This has been the problem with bitcoin adoption all along, whether people are honest about it or not.  Look how hard bitcoin has fallen in the past month and a half or so.  No one in their right mind is going to trade their local currency--no matter how inflated it's getting--for a super-risky, notoriously volatile asset like bitcoin.  They can trade their local currency for US dollars instead, or some other stable currency.  That's the smart play, and that's why the data show what they show.

Part of the problem, probably a very big part of the problem is that
a lot of people dont trust the government. When te government are
endorsing everyone to use Bitcoin they are not going to trust it
which is crazy! those people would rather distrust the government
that educate themselves.

I fully understand distrust of government, but there's no getting around the volatility issue, and I think that's the primary stumbling block.  And if bitcoin wasn't as volatile?  People wouldn't care about it so much  Someone please tell me I'm wrong, because I'm 99.999% sure I'm not.

But isnt volatility one of the main bugbears a lot of doubters and new comers have
with Bitcoin? For others it provides opportunity to make gains by trading and for more
by reducing and averaging their buy price

You recon if Bitcoins price movement fluctuated only a couple of % max. at a time it
wouldn't have the same pull for people? yea its probably correct and they dont realise it yet.

[Lucius]

All of the data is collected from economic surveys, which are not so different from political polls. Recently it was revealed that the sample size for twitters bot statistics was based on polling/surveys of 100 users which goes to show how modern day surveys and polls may not always be the most reliable sources of information.

The survey in question polled 846 men and 954 women for a total sample size of 1800.

1800 people in a country of over 6 million people is not a representative survey, no matter how much some have tried to portray it as something that reflects the real state of affairs. If we take into account that almost a quarter (23%) of respondents are over 55, and that 53% of respondents have only elementary school, should we be surprised that Bitcoin did not succeed as some imagined?

The strangest thing about the collected data is the el salvadoran public's claimed distrust of the government and state technology roll outs like chivo wallet. Shouldn't they be happy the government is taking steps to save them?

To understand the benefits of Bitcoin, however, you need to be somewhat educated and to some extent computer literate - and El Salvador is not a highly developed country when it comes to education or high technology. In addition, it is utterly illogical to conclude that Bitcoin failed (as many do) because it did not change El Salvador for the better - Bitcoin is a cryptocurrency, not debt-erasing magic.

[so98nn]

Those figures man, never expected it after the buzz they got for us when they declared El Salvador having legal tender for bitcoin. If you foresee the conditions in other countries where bitcoin is not even legal tender then also they have higher adoption of the bitcoin. Surprisingly the craze increased in Nigeria when they stated we are working on the bitcoin legalities even though their currency is not doing so well.

The reason seems to be very odd, but it must be studied as to why adoption is failing in that country? This study can help boost the future adoptions in other countries and avoid mistakes that were done by the El Salvador. May be its peeps choice??

[Lucius]

The reason seems to be very odd, but it must be studied as to why adoption is failing in that country?

How to expect a massive adaptation of something like Bitcoin in a country where, according to data from last year, as many as 70% of the population was unbanked? It is therefore wrong to conclude that Bitcoin is failing at the moment, because then we could say that the US dollar also failed after 20 years as the official currency, and before that the same happened with the colon (the national currency of the ES from 1892 - 2001).

What is the conclusion from all this? Maybe it’s a country where nothing works, and then we wonder why Bitcoin (so far) hasn’t managed to change anything? There are too many expectations, especially those that are completely unrealistic...

One third of the world is currently “unbanked” — that’s around two billion people who cannot get access to a traditional financing system. In El Salvador, 70% of the adult population do not have a bank account.

[Dunamisx]

More and more countries are opening tenders to accept bitcoin, this is the beginning of the rise of bitcoin, when initially it was only accepted by small countries but I believe the development of bitcoin will continue to improve and in 5 years many large countries will immediately follow the steps of El savador who accept bitcoin.

Base on what i can deduce, some countries are timely giving El-Savador a follow-up to see the outcome of it bitcoin adoption before they can know what next step to take, lol... no one want to bear the cross and difficulty now to secure the great future for the citizens as Nayib Bukele did, imagine when that time now comes and El-Savador is ever grateful for taking such a decision, wouldn't it be a thing of regret and shame on other countries watching and waiting on the outcomes?.