El Salvador experienced ups and downs in Bitcoin’s first week as a legal tender

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El Salvador Update

With the cryptocurrency Bitcoin becoming legal tender in El Salvador this week, there are long lines of cash machines on the fringes of the capital. Most people in line are after one thing: dollars.

Many people waited for the $30 worth of free bitcoins provided to them by the Salvadoran government to be converted into hard currency, but the ATM stopped working. An official admitted that only three people were able to withdraw money from the machine throughout the day.

One of the lucky three, Francisco Alemán, was cashing in bitcoin rewards collected from different family members-although due to the fall in the price of volatile currencies, when he got the money, it was $120 The sum has fallen to $118.

“I think this is a good thing,” the 24-year-old student said, adding that he thinks the technical problem is temporary. “Those who want to use it will stay, but those who don’t want it and only want $30 won’t. It will self-regulate.”

According to the authoritarian President Nayib Bukele (Nayib Bukele) hastily passed a plan of Congress, El Salvador this week became the first country in the world to adopt Bitcoin as a legal tender—a bold currency experiment. It is being closely watched by central bankers and cryptocurrency enthusiasts.

Eva Montes showed off the Chivo Wallet application, a Bitcoin wallet launched by the Salvadoran government to use Bitcoin as legal tender. © Jose Cabezas/Reuters

Businesses from shops to restaurants and barber shops must now accept Bitcoin and the U.S. dollar, which has been the official currency of El Salvador since 2001.

As of Tuesday, Salvadorans who download the Chivo digital wallet-the name means “cool” in local slang-can register with a national ID number to receive a bonus, which is equivalent to about 0.00065 bitcoins. To purchase a product, the user scans the QR code to pay immediately.

Touted by Bukele as a way to attract investment, reduce the cost of overseas remittances, and gain access to the country’s unbanked accounts (estimated to account for 70% of the total population), his government spent more than $200 million to create the application and build a network ATM and pay commission.

But the initiative has been criticized by economists, the International Monetary Fund and credit rating agencies, who say it threatens economic stability, puts consumers at risk, and exposes the government to potentially large-scale exchange rate fluctuations.

Among the thousands of virtual cryptocurrencies that have subverted traditional finance and challenged the central bank, Bitcoin is the most well-known.

However Launched a digital currency this week in this Central American country with a population of 6.5 million It has been very unsuccessful, and the app has been plagued by glitches and protests in the capital.

Although the $30 reward is for consumption in the store, many users find that by transferring it to another digital wallet, they can be withdrawn in cash-leading to long lines in front of the ATM.

Multinational companies operating in El Salvador, such as Pizza Hut and Starbucks, now accept Bitcoin payments, as does the mobile phone company Claro. “I’m fine-as long as it works,” said Ricardo Mejía, a 27-year-old small business owner who was also one of the people in the line.

Although it’s only the first week, Accept currency It seems to be limited as a means of payment. One of the country’s largest banks told the Financial Times that less than 0.0001% of its daily transactions are Bitcoin. As of Thursday, many of the country’s largest supermarkets are still unable to accept Bitcoin payments.

The Salvadoran government did not respond to a request for comment, nor did it provide data on the number of downloads or transactions using the app.

Most business leaders in the country remained silent at launch, preferring to keep a low profile. “We are in a’wait and see’ position,” said a senior executive at a large El Salvador bank who asked not to be named. “We are trying to manage it in the most conservative way.”

The executive stated that the bank processed a small number of bitcoin transactions this week and reached an agreement with an international exchange to convert them directly into U.S. dollars anyway.

Chivo staff help people use Bitcoin: Salvadorans who download the Chivo digital wallet can register with their national ID number to receive bonuses © Jose Cabezas/Reuters

Patrick Murray, the co-founder of Tuyo, an e-commerce app based in El Salvador, criticized the government for forcing companies to accept Bitcoin and for failing to include business.

“Almost no one is opposed to Bitcoin itself. People are opposed to doing things in the name of Bitcoin,” said Murray, a family member who owns the Grupo Agrisal hotel and real estate group. “This decision put us on the map for the wrong reason.”

However, not everyone is so pessimistic. In Salvadoran society, those who can benefit from Bitcoin are those who send and receive remittances-they contribute a quarter of Salvador’s 25 billion U.S. dollar GDP.

A Starbucks coffee shop in San Salvador accepts Bitcoin as a payment method. Most business leaders in the country remained silent at launch © Camilo Freedman/Bloomberg

Banks and remittance companies can traditionally charge huge fees for remittances: up to 10%. Bukele has stated that using Bitcoin can save Salvadorans US$400 million in commissions each year.

While queuing at the ATM, a family was trying to collect money from an Italian cousin and had been waiting for more than an hour.

The other line is Kiara Hueso, 27 years old. She is a beauty product salesperson. After two days of trying, she is very happy to be able to withdraw the $75 from her father in the United States-no commission. “It’s easier and faster,” she said with a smile.

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