El Salvador's Bitcoin Journey: Tracing the Impact of Cryptocurrency as Legal Tender

The term “Bitcoin” has been circulating among Latin Americans for some time, but it has gained significant traction in recent years due to various financial and political factors in the region. Since its inception in 2008 and subsequent launch to a broader market in 2009 (Inclusión y Educación Financiera), Bitcoin has experienced exponential growth in value and recognition worldwide. As a result, it has been adopted or at least well-received in several Latin American countries.

Given that Bitcoin is one of the strongest and most reliable cryptocurrencies on the market, as well as a peer-to-peer system (meaning its financial ecosystem isn't controlled by any central entity or server), it's hardly surprising that more countries are considering adopting it or leveraging it for their own initiatives (Inclusión y Educación Financiera).

According to Bloomberg, out of the top 20 countries with the highest cryptocurrency adoption rates, three are located in Latin America: Mexico, Argentina, and Brazil. These countries surpass even nations with more robust economies, such as the United Kingdom, Japan, and Canada, in terms of cryptocurrency usage.

El Salvador has also left its print as a notable example of Bitcoin adoption in Latin America. Under the leadership of President Nayib Bukele, the country enacted legislation in September 2021 to formally adopt and regulate Bitcoin as legal tender (Cota, 2023). This move underscores El Salvador's commitment to embracing innovative financial technologies and fostering economic growth.

In this introductory piece about Bitcoin adoption in El Salvador, we intend to explore the essence of the Bitcoin experiment, the strategies employed to introduce it to Salvadorans, and the initial reactions from both the general public and business owners.

El Salvador: The Bitcoin Experiment

The adoption of Bitcoin in El Salvador did not come as a complete surprise. Prior to the legal adoption of this cryptocurrency in 2021, a smaller-scale experiment had been underway since 2019 in a local coastal city known as El Zonte, which later became known as Bitcoin Beach.

This initiative unfolded in three phases (Bitcoin Beach, 2024): Initially, it funneled Bitcoin into the local economy and provided the necessary technological infrastructure for small businesses to complete transactions in Bitcoin, which aided in overall faster adoption.

The second phase entailed educating the community, comprising approximately 600 families, on the use of the technology to pay and be paid in Bitcoins, as well as on how to swiftly receive remittances directly to their e-wallets, ultimately saving money by removing transaction fees. 

The final phase focused on active promotion through activities such as surfing classes, the release of baby turtles, and local tours, among many others, all of which offered the option to pay in Bitcoin (Everything El Salvador, 2024). This aimed to draw international tourists and investors who were already engaged in the world of cryptocurrency trading.

This experiment was likely the inspiration behind the initiative enacted by the Presidential team, which led to the creation and eventual announcement of the “Bitcoin Law,” aiming to establish this cryptocurrency as legal tender in El Salvador. This announcement occurred at the Bitcoin conference in Miami on June 5th, 2021.

On June 8th, 2021, the Ministry of Economy presented a draft of the bill to the National Assembly, which was approved within a single day. By September 7th, 2021,  Bitcoin had been declared legal tender, and all necessary technological infrastructure had officially been made available and was fully operational. All businesses were mandated to accept Bitcoin as a payment method.

By the end of 2021, El Salvador had already purchased 1,391 Bitcoins, investing approximately $77 Million US dollars (Nayib Bukele Portfolio Tracker).

Some of the key points from the Bitcoin Law intended to expedite the adoption of Bitcoin as a currency include but are not limited to:

• Tax-free transactions, as stated in Article 5.
• Mandatory acceptance of Bitcoin by all businesses as a form of payment, as stated in Article 7.
• Provision of accessible means to execute transactions and facilitate instant conversions from Bitcoin to US dollars, as stated in Article 8.

El Salvador's e-Wallet: Chivo Wallet.

In an effort to promote the adoption of Bitcoin and to integrate it into El Salvador’s economic framework, the government developed its own mobile app to facilitate transactions using this cryptocurrency. Their mobile app, better known as “Chivo Wallet,” was made available to the public soon after the Bitcoin Law was passed.

To further motivate Salvadorans to download and engage with the app and promote the integration of Bitcoin into the economy, a fund of $75 million USD was allocated to offer a $30 USD-equivalent incentive in Bitcoin to each individual who downloaded the app and registered an account. This ultimately benefited approximately 2.5 Million app users. Comprehensive instructions for the app were disseminated through multiple media outlets, and its usage was promoted for making purchases, accepting payments, and receiving remittances.

Initial Reactions from Businesses and the General Public: An Overview

When it comes to initial reactions of the general population to the official adoption of Bitcoin as legal tender, it was found that nine out of ten Salvadorans had a vague understanding or were unaware of what Bitcoin was when the Bitcoin law was enacted in 2021, as reported by the Instituto Universitario de Opinión Pública of the Universidad Centroamericana José Simeón Cañas. Another noteworthy fact is that 70% of the individuals who participated in the study expressed having little or no confidence in Bitcoin, citing its unpredictability and constant value fluctuation as one of their major concerns.

The impact of the Bitcoin Law from a business perspective was also eventful. Although the law stipulated that the adoption of Bitcoin as currency was voluntary, it mandated all businesses operating in El Salvador to have the e-wallet readily available, and to accept Bitcoin from customers as payment for goods and services. The voluntary aspect of this mandate was that businesses could choose whether to receive transactions in Bitcoin or USD through the Chivo Wallet; however, they were still required to have and use the e-wallet (Haig, 2021).

Coming up: Exploring Current Perceptions of Bitcoin Among Salvadorans, Its Impact on Businesses, the Government's Use of Profits from Bitcoin Trading, and Projections.

In our next thought pieces on Bitcoin in El Salvador, we aim to explore the evolving perceptions Salvadorans have of this cryptocurrency nearly three years after its adoption as legal tender. We will examine Bitcoin’s impact on businesses and analyze the government’s utilization of earnings from Bitcoin trading, their projections concerning future trading activities, and the potential acquisition of more Bitcoin.

Moreover, we will assess the initiatives undertaken to educate the general public about this digital currency as a financial alternative to El Salvador’s primary currency, the US dollar. And finally, we will evaluate all the potential implications for both entrepreneurs and well-established businesses that are contemplating entry into the Salvadoran market.