Bitcoin in El Salvador — after one year
El Salvador has accepted Bitcoin as legal money for one year. El Salvador's crypto adoption has not been without problems, but it's tough to sift among the various Bitcoin headlines because so many conflicting interests are either promoting or FUDing Bitcoin.
Why El Salvador Made Bitcoin Legal Tender
El Salvador legalized Bitcoin ostensibly for several reasons. The government provided the following justifications:
A substantial proportion of El Salvadorans receive money transfers from the United States. In fact, 20% of El Salvador's gross domestic product is comprised of remittances from the United States. Fees for sending money to El Salvador are not low. Bitcoin transactions are minimal, so the government of El Salvador made Bitcoin legal tender to lower the costs citizens must pay when sending money abroad.
Approximately 70% of the population of El Salvador does not have a bank account. Bitcoin transactions can function as a type of bank account.
El Salvador's currency is the United States Dollar, which is currently experiencing moderate inflation. El Salvador adopted Bitcoin as a hedge against the dollar's inflation.
The three reasons outlined above are the official justifications given by El Salvador for legalizing Bitcoin. El Salvador undoubtedly has further reasons for making Bitcoin legal tender that they will not disclose publicly. Additionally, it is vital to emphasize that USD remains legal cash in El Salvador. Despite Bitcoin's legal status as a currency, the majority of the country's transactions continue to be conducted in US dollars.
The actuality regarding Bitcoin in El Salvador
However, despite the high expectations held for the use of Bitcoin in the country, Salvadorans are not utilizing Bitcoin to send money home. According to data from worldcoinstats.com, only 3.2% of all remittances are made using Bitcoin, which is somewhat disappointing. Obviously, no one expected this number to reach 100 percent overnight, but this usage is unimpressive compared to what many in the cryptocurrency industry anticipated. Next, do Salvadorans do daily transactions with Bitcoin?
Again, the answer is no Despite the fact that Bitcoin is legal cash in the country, it is estimated that around 80% of stores do not accept it. Given this, it is doubtful that Salvadorans conduct the majority of their transactions using Bitcoin.
When it was introduced, the Chivo wallet software (the official Bitcoin lightning network app of El Salvador) had over 4 million downloads. This is due to the fact that new Chivo wallets receive a complimentary R535 deposit. The typical daily wage in El Salvador is R214, thus for many Salvadorans, R535 represents a few days of work. Given their meager daily income, it is inevitable that many would download an app offering R535 for free.
Finally, has Bitcoin been an effective hedge against the inflation of the U.S. dollar?
El Salvador purchased about R1.8 billion worth of Bitcoin at an average price of R803K during the past year. Bitcoin is currently valued at approximately R340K. In the past year, El Salvador has lost more money by holding Bitcoin than it would have by holding USD, given that USD inflation is currently around 8.2%.
Obviously, Bitcoin is more of a long-term investment for El Salvador, therefore it is quite absurd to proclaim this a failure after only a year. A year after the country made Bitcoin legal tender, Bitcoin in El Salvador has not been very successful. However, there is still no cause for alarm. El Salvador's Bitcoin experiment is a long-term endeavor, therefore if the country can maintain its commitment to the experiment, it will likely be successful.
