Protests, Chivo App and everything else explained
Throw it all aside you thought you knew about money and currency, and envisioned a world where Bitcoin is legal tender. Imagine stopping by your local coffee shop or drugstore and paying for everything with Bitcoin just by scanning a QR code with your phone.
In El Salvador, a country in Central America, this is the goal. But the results so far have been mixed at best.
The Bitcoin Law, proposed by the country’s divisive President Nayib Bukele, was passed by the Legislature in June and came into effect on September 7, 2021, making the country of 6.5 million the first to give the status of legal tender to the cryptocurrency. This puts Bitcoin on a par with the US dollar, which became the official currency of El Salvador 20 years ago.
As part of the rollout, Bukele’s government launched its own national crypto wallet called “Chivo”, Salvadoran slang for “cool.” As an incentive, those who downloaded and registered the app received $ 30.00 in Bitcoin from the government’s newly gained trust. While the average cryptocurrency enthusiast will likely see this as a step in the right direction for both the industry and the world’s leading cryptocurrency, the situation is not so clear. Let’s take a closer look at what’s really going on in El Salvador.
Bitcoin in El Salvador: Mixed Prospects
El Salvador’s Bitcoin Law is generating excitement within the cryptocurrency community, but on the ground, Salvadorans have mixed feelings about their government’s decision.
Shortly after the rollout, industry commentator Charles Hoskinson, founder of digital currency Cardano, predicted that other countries would follow El Salvador’s lead by adopting cryptocurrencies as legal tender. In October, BitMEX CEO Alexander Höptner backed the move, saying at least five more developing countries will follow by the end of 2022. Responding to news from El Salvador, Edward Snowden tweeted, “Latecomers may regret having hesitated.”
Since the day the Bitcoin law came into effect – when the coin was valued at just $ 46,777 – the value of Bitcoin has already risen by around 30%. But this optimism is not shared by everyone. When I asked Salvadorans on Reddit about their country’s adoption of Bitcoin, some of the responses reflected the frustration that prompted several thousand people to take to the streets of the capital San Salvador to protest the new law. A Bitcoin ATM was set on fire and people were holding signs that read “NO AL BITCOIN” and “BUKELE DICTATOR”.
“My country is walking towards a dictatorship. “
(President Bukele is a divisive figure. Around the same time that Bitcoin became legal tender, Bukele’s government purged over 100 judges. And earlier this year, his government filled the Supreme Court with supporters who announced a rule that would allow Bukele to run for another term in 2024.)
Speaking to Inverse via a Reddit comment section, user Snow75 questioned Bukele’s motives and expressed concerns about how Bitcoin would be used. In El Salvador, a country where many citizens do not have access to the Internet and where quality education opportunities are limited, residents are increasingly affected by a “wave of electronic scams”. The adoption of cryptocurrency “could be a recipe for disaster.”
Snow75 continued, “My country is heading towards a dictatorship, government spending is disproportionate and the president is playing our money in Bitcoin. Poor third world countries are not ideal for economic experiments. A rich country with money available could give it a try, but here it takes funds that could be spent on education, infrastructure or health.
The Chivo application explained
At the center of El Salvador’s transition to Bitcoin is Chivo, a government-controlled cryptocurrency wallet that you can download as an app on your phone (at least, in theory). Like any similar wallet, crypto is designed to allow you to send and collect cryptocurrency and also as a place to store your digital money.
The Salvadoran government has promoted Chivo as an easy way for Salvadorans abroad to send money home, which is true in theory, but it is also an easy way for the government to control the money. people. As the Nasdaq points out, it is impossible to send Bitcoin from Chivo to another wallet, which is not exactly in line with the central decentralized concept of cryptocurrency.
“The first day was a bit to joke. ”
However, according to the “Bitcoin Boys,” two crypto enthusiasts and investors based in El Salvador, the initial rollout of the Chivo app did not go smoothly.
“The first day was a bit of a joke,” they said. “For most people, it didn’t work at all.” The app could not be found in the app stores of many Android phones. “Half of the people we know couldn’t download it on day one.”
The fact that a large portion of the Salvadoran population has not been able to access the Chivo app (and the free $ 30.00 in BTC that comes with it) highlights the risks of adopting Bitcoin in a developing country that requires crucial investment and growth. Some experts fear that this could worsen existing inequalities.
Street vendors and “mom and pop” stores often do not have the resources or the know-how to download, register and access the Chivo app. “It might work for big companies, but Bitcoin is too volatile for us to take it,” the Bitcoin Boys say, adding that a street vendor selling blank told them, who pulled out an old phone (“in brick shape “) that wouldn’t even be compatible with Chivo in the first place.
Even for some users who can access and use Chivo, navigation still hasn’t been smooth.
On September 7, the day of the deployment, the Bitcoin Boys visited a local Pizza Hut to test Chivo. But while the chain was ready to accept cryptocurrency, the app itself was down. “This is what happens when you try to develop a very complex financial application in three months,” explains Quinn.
But their experience was not universal. Crypto enthusiast Aaron van Wirdum posted a photo on Twitter showing how he easily bought breakfast at a McDonald’s in San Salvador by scanning a QR code with Chivo. Wirdum also posted a video showing how he managed to withdraw $ 20.00 from a Chivo ATM.
Bitcoin ATMs are a key part of the government’s adoption strategy. El Salvador is now home to the third largest crypto ATM network (205 and growing), after the United States and Canada. Bukele’s government has also installed 50 Chivo ATMs in 10 cities across the United States, including Los Angeles and Chicago, with the goal of making remittances to El Salvador cheaper and more accessible.
The Bitcoin Boys say that Chivo has gradually become more accessible and reliable. To test this, during our interview on September 20, Kevin messaged me on his Chivo wallet address and I sent $ 5.00 from my Coinbase account. He received the parts in less than five minutes. Traditionally, a transaction like this would have required finding a physical location or a trustworthy website, costing around $ 1.00 in fees, and taking days to settle.
Sending Bitcoin home
Many of the 2.5 million Salvadorans living in the United States regularly send money to friends and family living in El Salvador.
By adopting a non-traditional currency that coexists with the US dollar but can be traded outside the international banking system. According to the Wall Street newspaperBukele went so far as to promise that Salvadorans will still be able to transfer their money with Chico even if the country faces penalties for corruption.
But there is another reason cited by Bukele for making Bitcoin legal. This channeling of money from abroad is crucial for most of the country. In 2020, Salvadorans abroad returned nearly $ 6 billion, or about 23% of the country’s GDP.
However, much of that money has gone to money transfer service providers like Western Union who facilitate these transfers. These fees can have a big impact on Salvadorans given that the average monthly money transfer is $ 195. For households that receive payments from relatives abroad, remittances represent 50 percent of their overall income.
Bukele estimated that remittance service providers would lose $ 400 million a year in commissions if Salvadorans adopted Bitcoin on a large scale – money that would go directly to residents instead.
“Bitcoin really solves this problem,” Matt Hougan, chief investment officer at Bitwise Asset Management, recently told CNBC. “It won’t be overnight; 100% of remittances will not transfer to the Chivo app tomorrow … But the current fee levels for remittances are going to prove unsustainable. “