It’s been a year since El Salvador became the first country in the world to adopt Bitcoin (BTC) as legal tender. The decision was seen as a footprint for the rest of the countries intending to follow the same path at a time when Bitcoin is still maturing.
As of the adoption date of September 7, 2021, Bitcoin was trading at $47,767 but has since lost its value by 60.52%, trading at $18,857 at press time. Interestingly, during the period, Bitcoin also hit an all-time high of nearly $68,000 at the end of 2021. Aside from price, adoption faced myriad challenges.
The decision to adopt Bitcoin saw the government embark on an ambitious plan to market El Salvador as a crypto hub. The plan involved initiatives like the accumulation of Bitcoin.
Bitcoin wallet downloads dive
To promote Bitcoin adoption, the Salvadoran government unveiled the Chivo digital wallet, where residents would receive a $30 bonus for downloading. However, the state has not shared data on the use of the wallet. Barely a month after Bitcoin was legalized, President Nayib Bukele claimed that around 25% of the country’s population used the wallet.
Interestingly, a survey by the National Bureau of Economic Research (NBER), a US-based NGO, found that only 20% of residents who originally downloaded the app were still using it. Notably, most only downloaded the wallet to use the free credit. Reports indicate that almost no downloads were made in 2022.
Moreover, President Bukele had promised to build a “Bitcoin City”, a plan that has not been realized to date. The city was intended to be a tax haven for crypto companies setting up camp in the country.
Despite the lack of progress in Bitcoin City, El Zonte, a beach in El Salvador that has been renamed “Bitcoin Beach,” is set to receive more than $200 million in infrastructure upgrades as part of a plan to be implemented by the government.
More importantly, the main stumbling block in the country’s adoption of Bitcoin has been a lack of sufficient education and confidence in using the flagship cryptocurrency. At the same time, the resident’s motivation to use Bitcoin was affected by the high volatility of the asset.
In support of the initiative, a new law was passed requiring all businesses to accept cryptocurrencies. However, only 20% of them chose to integrate digital assets into their system.
Although Bitcoin’s legal status was intended to stimulate the economy, the initiative seems to be faltering. For example, the recent collapse in Bitcoin’s value has complicated matters for the country as it seeks funds to pay $1.6 billion in sovereign bonds due in 2023 and 2025.
Pressure to revise the legal status of Bitcoin
In addition, El Salvador’s decision continues to be criticized by international entities. In this case, the International Monetary Fund (IMF) pushed the country to revise Bitcoin’s legal status citing financial, economic, and legal concerns.
It is worth mentioning that El Salvador’s adoption has inspired other countries in the region to consider Bitcoin. Most countries suffer from economic difficulties characterized by high inflation and devaluation of local currencies. Hence, the situation makes Bitcoin a perfect option since the asset acts as a hedge against tough economic times.
In the meantime, Chairman Bukele remains defiant, saying the Bitcoin strategy is on the right track.