El Salvador became the first country in the world to adopt Bitcoin as an official currency alongside the US dollar back in September 2021. The initiative was introduced by President Nayib Bukele, who aimed to transform the country’s economy and attract investment. Three years later, it’s time to assess the preliminary results of this experiment.
How Are El Salvador and Bitcoin Connected?
The main goal of the program, as envisioned by Nayib Bukele, was to give Salvadoran citizens access to modern financial tools. This also included reducing the dependency on the banking system, which serves only 30% of the population. The government hoped to stimulate an influx of investment, tourism, and businesses, while also offering more financial system choices for its residents.
The introduction of Bitcoin was intended to reduce El Salvador’s reliance on remittances, which make up a significant portion of its GDP. Citizens working abroad send billions of dollars back to their families every year, but banks charge high fees for such transfers. Bitcoin was expected to help reduce these costs.
Bitcoin as a Payment Method
The program was launched with a large-scale advertising campaign and the development of the Chivo wallet, which the government offered free to all citizens. Each user received a $30 Bitcoin bonus to encourage interest in the cryptocurrency and its use in everyday transactions.
In practice, however, the adoption of Bitcoin as a payment method was slower than Nayib Bukele had anticipated. By 2022, despite grand plans, only a small percentage of businesses had started using Bitcoin actively. Many entrepreneurs continued to prefer US dollars due to the volatility of cryptocurrency and technical challenges in its use.
One year after the launch, some preliminary results were clear. Initially, over two million Salvadorans downloaded the Chivo wallet, but Bitcoin did not become widely adopted as a payment method. Analysts estimate that only 20% of small and medium-sized businesses in El Salvador were willing to accept Bitcoin as payment.
Technical difficulties with integrating cryptocurrency also played a role. Many users reported errors in the app, issues with withdrawing funds, and poor service. Due to these shortcomings, Bitcoin was primarily used for savings rather than for daily transactions.
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Nayib Bukele’s Assessment
Despite the criticism and difficulties in adoption, President Nayib Bukele remains positive about the initiative. In a recent interview, he commented: “Bitcoin hasn’t spread as widely as we had hoped, but this step was still important for the country.”
Bitcoin adoption has brought El Salvador numerous benefits, including a rise in tourism, an influx of investment, and an improved international image. “We’ve gained recognition, attracted investments and tourism. I believe the positive results outweigh the drawbacks, and the issues noted were relatively minor,” Bukele emphasized.
Moreover, the president expressed pride in El Salvador becoming the first country to embrace Bitcoin.
From a financial perspective, as of March 2024, the government’s strategy paid off in terms of asset appreciation. In his speech, Bukele noted that in 2024, the country’s Bitcoin holdings saw a record profit of 53%. This means the assets acquired by the Salvadoran government appreciated significantly, despite the cryptocurrency market’s volatility. Throughout the year, Bitcoin’s price fluctuated, dropping below $50,000 and then recovering.
Does El Salvador Have a Future with Bitcoin?
Amid ongoing discussions about Bitcoin, Nayib Bukele stressed that the Salvadoran government does not plan to abandon its cryptocurrency strategy. The most ambitious project for the coming years is the construction of “Bitcoin City,” which is envisioned as an innovation hub with an economy based on Bitcoin.
The president is confident that El Salvador and Bitcoin will continue to move forward together. “I can’t say this is the currency of the future, but this currency has a lot of future,” he remarked in one of his speeches, pointing to cryptocurrency’s growth potential in the global economy.
Conclusion
It can be said that El Salvador and Bitcoin were not ready for rapid collaboration, yet the project has been largely successful in attracting attention to the country and improving its investment climate. Mass adoption of cryptocurrency as a payment method remains uncertain. President Nayib Bukele remains confident in his decision and views Bitcoin as a crucial element in the country’s future.
El Salvador and Bitcoin continue to develop closely together, and only time will tell how successful this experiment will be in the long term.