Since El Salvador’s adoption of Bitcoin (BTC) as its official legal tender in September 2021,
the history of the world’s first “Bitcoin Nation” has been punctuated with significant events and controversies. Two years on, it’s time to take stock of the impact of this bold decision and subsequent developments.
We will delve into the history of Bitcoin in El Salvador, from its inception as legal currency to its integration into the educational curriculum, and examine both local and international reactions.
The Birth of Legal Bitcoin in El Salvador
On September 7, 2021, El Salvador made history by enacting the “Ley Bitcoin,” which consisted of 16 articles. This law aimed to achieve several ambitious goals, including increasing national wealth, promoting financial inclusion, and reducing remittance costs for the country’s three million expatriates. Notably, the law required merchants to accept Bitcoin as a means of payment and allowed citizens to pay their taxes in BTC. Moreover, it exempted Bitcoin transactions from capital gains tax, all with the intention of attracting investors and tech companies.
President Nayib Bukele argued that this decision represented an opportunity to modernize the Salvadoran economy, reduce dependency on the U.S. dollar, and encourage the participation of the unbanked population in financial services.
The initial phase of Bitcoin adoption in El Salvador appeared promising. The government launched an aggressive campaign to promote the Bitcoin Chivo wallet, offering $30 worth of BTC to every citizen who downloaded it. Nearly one-third of the Salvadoran population swiftly embraced this application. Official figures indicated that approximately four million Salvadorans were using the Chivo wallet at the beginning of 2023, which accounted for nearly two-thirds of the country’s population.
El Salvador’s decision to adopt Bitcoin had significant geopolitical consequences. The country experienced remarkable growth in tourism, with an 80% increase in visitors between 2021 and 2022, partly attributed to the positive effects of Bitcoin adoption. Other countries in Latin America, including Central African Republic and Honduras, demonstrated increased interest in cryptocurrencies and blockchain technology following El Salvador’s lead.
Crypto companies were also drawn to the favorable tax incentives El Salvador offered. Crypto firms could enjoy a 14-year tax exemption, which led to a rise in local employment.
Local Adoption Challenges
Despite the initial enthusiasm, recent data paints a mixed picture of Bitcoin adoption in El Salvador. According to a 2022 survey by the Central American University, the use of Bitcoin as a means of payment has not become widespread among the population. Market volatility and the subsequent bear market appear to have contributed to this trend. A survey by the Bank of El Salvador in 2023 revealed that only 1% of funds sent from abroad were in Bitcoin.
Price volatility has been a key factor in local adoption challenges. When El Salvador adopted Bitcoin, its price exceeded $45,000, eventually reaching an all-time high of nearly $70,000. However, at the time of writing, Bitcoin was trading at just over $26,000. This volatility raised concerns among the local population regarding the use of Bitcoin as a daily means of payment.
Faced with these challenges, the government of El Salvador decided to introduce Bitcoin into the country’s schools. This program aims to educate teachers about Bitcoin so they can teach students the basics of cryptocurrency. This initiative is supported by local projects like Bitcoin Beach and “Mi Primer Bitcoin” (My First Bitcoin), which provide Bitcoin education programs.
Teachers participate in courses to learn how to send and receive Bitcoins, and they receive a “Bitcoin diploma” upon completion of the learning process. The content of this training is available online as a 10-week Massive Open Online Course (MOOC). Several other Latin American countries have also expressed interest in this educational program, indicating that El Salvador’s experience has sparked international attention.
Balancing Business and Citizens
The Salvadoran government continues to focus on attracting cryptocurrency businesses to the country. This year, President Nayib Bukele introduced a bill to exempt tech companies from taxes, which garnered significant interest from crypto industry players. In April, Bitfinex, associated with Tether (USDT), became the first company to receive a license to offer asset tokenization. Recently, Tether itself invested $1 billion in a mining project in El Salvador. In August, it was announced that Binance had become the first regulated cryptocurrency exchange in El Salvador.
The government’s strategy centers on both business attractiveness and citizen education. This combined approach seeks to stimulate Bitcoin adoption in the country while preparing the population for this transition. Whether this long-term strategy will succeed remains uncertain, but El Salvador’s experiment has captured the world’s attention and will serve as a reference for future large-scale cryptocurrency adoption initiatives.
The adoption of Bitcoin in El Salvador was a bold and controversial move that opened new possibilities for cryptocurrencies worldwide. As El Salvador enters its third year of using Bitcoin as legal tender, the results are mixed, but the commitment to Bitcoin adoption remains strong.
The combination of technological innovation, investment in education, and appeal to cryptocurrency businesses makes El Salvador a unique case study and a source of inspiration for other nations. The future will undoubtedly bring new exciting chapters in the history of Bitcoin in El Salvador and its influence on global cryptocurrency adoption.