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El Salvador, a country famous for its stunning beaches, is gaining attraction for adopting Bitcoin. It made headlines with its announcement that it would recognize Bitcoin as legal tender. In this article, we will discuss the driving factors behind this bold move and its implications for the nation’s economic and financial landscape.
In 2019, the first Bitcoin experiment was started in a small coastal city by the name of El Zonte. The experiment was divided into three different phases, and they are,
This transformation earned the town the moniker “Bitcoin Beach” and set the stage for El Salvador’s significant embrace of cryptocurrency.
At the Bitcoin Conference in Miami on June 5th, 2021, President Nayib Bukele’s administration unveiled the groundbreaking “Bitcoin Law,” designating Bitcoin as an official form of currency in El Salvador. The Ministry of Economy submitted this legislation as a draft bill to the National Assembly, leading to its official declaration as legal tender on September 7th, 2021. With all the necessary technical infrastructure in place and operational, including Bitcoin ATMs, El Salvador achieved a historic milestone, becoming the world’s first country to recognize Bitcoin as legal tender. Some of the important provisions of the legislature include,
To promote Bitcoin adoption in the country and seamlessly integrate it into the national financial infrastructure, the government of El Salvador developed and released its own app, called the “Chivo Wallet,” to facilitate cryptocurrency transactions.
To motivate people to download the app, the government allocated a separate $75 million USD fund, and each individual who registers an account will receive Bitcoin worth $30 USD. Furthermore, they also provided various clear instructions on how to utilize its features for payments, purchases, and receiving remittances.
Since the app’s launch in September 2021, nearly half of the country’s households have downloaded it. However, new household adoption has significantly slowed down since 2022. Of the early adopters who received incentives, over 60% have not made any transactions, and 20% haven’t used their incentives.
Given that over half of the population relies solely on cash and most people have access to traditional banking services, El Salvador presents an ideal environment for crypto adoption. Furthermore, the Chivo wallet, which offers fee-free conversion from Bitcoin to dollars and provides a $30 incentive, has garnered significant attention. Nearly 78% of the population attempted to download the app, with reasons for not doing so ranging from distrust to a preference for cash.
Among active users who have utilized the app post-incentive, nearly half have not withdrawn cash from Chivo ATMs. Despite the law requiring firms to accept Bitcoins, only 20% comply, while 88% of the firms opt to convert their Bitcoins into dollars.
El Salvador’s decision to legalize Bitcoin has the potential to catalyze significant changes to the global financial system. However, there are several challenges that need to be addressed. They are:
El Salvador’s decision regarding Bitcoin adoption marks a groundbreaking initiative with far-reaching implications for economic growth, financial inclusion, and global crypto adoption. As it continues to navigate the challenges and opportunities of integrating Bitcoin into its economy, the country’s experience will serve as a valuable asset.
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