El Salvador’s President, Nayib Bukele, declared bitcoin, the world’s first cryptocurrency, to be legal tender on June 5. The Bitcoin Law was passed a few days later, with an effective date of Sept. 7. Businesses would be required to accept bitcoin as a form of payment for all transactions.
Bitcoin was designed to be a non-government-controlled form of money. There were several obvious drawbacks to using bitcoin as a government-backed currency: Cryptocurrency has a massive money-laundering problem, bitcoin’s price is extremely volatile, and cryptocurrencies are still difficult and unwieldy to use.
Accepting bitcoin would be entirely optional for Salvadorean government officials at times, and mandatory at others, according to government officials.
76% had Internet access, but it was limited to low-cap data plans; other surveys found that reliable Internet was available to 45 percent of the population, with less than 10% in rural areas.
Chivo—Salvadoran slang for “cool”—was announced by Bukele as an official bitcoin wallet. This would function similarly to PayPal, with a dollar balance and a bitcoin balance held by Chivo. New users would receive a $30 bitcoin signup bonus. Chivo ATMs were installed in 200 locations across the country, and 50 staffed Chivo kiosks were built.
Dollars are sent to Chivo, the government subsidizes transmission costs and keeps the actual dollars, and the recipient receives virtual “dollars” that are numbers displayed in the Chivo app.
On September 7, just after midnight, Chivo went live. At three a.m., the system began to fail. App installations were not re-enabled until 11:30 a.m. after server capacity was increased. Throughout the day, transactions failed; customer service lines were backed up; and Chivo ATMs ran out of cash.
Bitcoin’s price plummeted by $10,000 in three minutes shortly after ten a.m. Chivo users saw their $30 in bitcoin plummet to under $25 in real time, providing a valuable lesson in bitcoin’s volatility. Bukele blamed the crash on the IMF, but it was more likely due to leaked news that crypto exchange Coinbase had received a warning from the US Securities and Exchange Commission.
The day before, Bukele had purchased $20.6 million in bitcoins for the national treasury.
Following protests on September 6, over 1,000 people marched on the Legislative Assembly on September 7, leapfrogging barriers set up early that morning to keep them out. Tires were set on fire by one group of protestors. Opposition politicians wore “No Bitcoin” t-shirts to the day’s session.
The protests were not directed at bitcoin. People were protesting the forced acceptance, the government’s complete lack of transparency, and the broken Chivo payment system — “people are against how things are being done in the name of bitcoin,” said local businessman Patrick Murray.
The problems extend beyond what can be done on the ground. Bukele enjoys widespread support because he invests heavily in public services. Bukele can’t print money because El Salvador’s currency is the US dollar, so he has to borrow—or use the Bitcoin Law to skim remittances sent from abroad.
El Salvador’s sovereign debt dropped nearly five cents in a single day, ending September 7 trading at 87.6 cents on the dollar, as a result of the Bitcoin Law and the disastrous launch of Chivo. Because of the Bitcoin Law, the World Bank and the International Monetary Fund are already hesitant to provide additional funding.
Chivo’s issues persist. Salvadorans ostensibly need a photo of their national ID card, a photo of themselves, their ID card number, and their date of birth to sign up for Chivo and receive their $30 in bitcoin.
However, Chivo’s identity verification feature didn’t even look at the photos—you could register with just a DUI number and a date of birth that matched. Some users discovered that their DUI number had been used previously. Others put the system to the test by using DUIs that were well-known. Residents who had not yet downloaded the app received SMS verification codes. Salvadorans in the United States had difficulty registering to send remittances home.
Bitcoin was met with skepticism by traders. Others were suspicious of money they couldn’t touch. It’s possible that street vendors don’t even have phones. A large portion of their clientele is illiterate. Payments in bitcoin were not accepted by some government offices.
Chivo transfers to bank accounts were unreliable. The Chivo ATMs were not reliable; one machine was reported to have made three successful cash withdrawals in a single day. Even bitcoin transfers in and out of Chivo had issues. People expressed their dissatisfaction with @chivowallet’s tweets.
It is not necessary to use Chivo; some people prefer to use the Bitcoin Beach or Muun wallets. However, interoperability is patchy, and the government does not subsidize transaction fees on Bitcoin Beach or Muun.
A Chivo kiosk was set on fire and spray-painted with anti-Bukele graffiti, but this does seem to be a clear false flag: the vandals were wearing T-shirts given to them by a government-owned vehicle that had previously been used to distribute pandemic relief packages.
Bukele is pushing forward with the Chivo project because his plans require those remittance dollars, and he is still hoping for an influx of foreign bitcoins.
It is unknown when or if the Chivo network will be fully operational.