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El Savador bids adios to bitcoin legal tender experiment

Writer's picture: S Pettigrove and M BacinaS Pettigrove and M Bacina

Updated: 17 hours ago



After making waves in 2021 as the first country to recognise bitcoin as legal tender (meaning that citizens would be forced under law to accept bitcoin in settlement of debts), El Salvador has been forced to say 'adios' to that classification as part of deal from the International Monetary Fund. The classification had unexpected impacts around the world, including into how cryptocurrencies should be taxed.


El Salvador's National Bitcoin Office continued buying bitcoin after the IMF deal was finalised, and plan to buy more:



El Salvador presently holds 6,050 bitcoins worth around USD$635M and seems to have made a very substantial gain on it's holdings to date. However reports suggested that despite bitcoin becoming legal tender, El Salvador citizens did not take up the use of bitcoin in great numbers. A study from Yale's School of Management had interesting findings:

The researchers were impressed by how many people were aware of and downloaded the app: almost 68 percent of potential users knew about Chivo Wallet; 78 percent of that group at least tried to download it. But from there, the numbers declined drastically. Despite incentives by the government—including a $30 Bitcoin bonus, a discount on gas when bought with the Chivo Wallet, and the elimination of certain transactional fees—almost 20% of people who downloaded the app hadn’t used their bonus by the time of the survey and most people who spent their bonus didn’t continue to use the app after doing so.

But despite theories that users were avoiding bitcoin due to volatility, it might be that they were more educated than expected around privacy:

people shared that they did not trust the app or Bitcoin because they are not anonymous, as cash is. The latter explains why Chivo Wallet was not even used to conduct transactions in dollars.

This finding is consistent with research by the RBA which found that consumers placed significant value on privacy features for any retail CBDC.


With President Trump passing an executive order banning a Central Bank Digital Currency from the USA, and many becoming more aware of the lack of privacy inherent in public cryptocurrency transactions, it is essential for widespread adoption of any payment system that users can enjoy privacy over their transactions, or network effects necessary for a currency to work will not take root.


By Michael Bacina and Steven Pettigrove


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