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El Salvador relies on Bitcoin as its state currency: the bumpy start into the future

Since yesterday El Salvador introduced Bitcoin as the official currency, even fast food and taxi rides should now be able to be paid for with the digital coins. But there was no great enthusiasm in view of the bumpy start.

At some point, Bitcoin and Co. will inherit the classic currencies, this is what crypto fans have been dreaming of for years. With El Salvador, the first country in the world has now recognized Bitcoin as an official currency in addition to the US dollar. Although the majority of the population is against it. The government is hoping for an investment boom. But first came the big shock.

Because the day of the introduction, long awaited by the crypto community, did not go as smoothly as many had hoped. Technical problems with the wallet app offered by the government, protests by citizens and a Bitcoin crash caused a lot of unrest. It didn’t help that fans celebrated with the first McDonald’s menu paid for by crypto on Twitter.

“Cool” app and money gifts

The government of the Central American country had done a lot to recommend the new currency to the population. Each citizen received a free Bitcoin amount equivalent to a value of 30 dollars (about 25 euros). The Chivo app (local term for “cool”) was a separate point of contact where Salvadorans can store their coins. With a system of 200 Bitcoin kiosks and ATMs, the aim is to lower the entry barrier even further.

But it didn’t really work on day 1. The app, which you absolutely needed to request the entry fee, could not be found in any of the well-known app shops, it only appeared later that day in Apple’s App Store and in Huawei’s App Gallery. But under the great influx, the registration servers collapsed. And the ATMs, at which the Bitcoin could be exchanged for the de facto national currency US dollar, which is still valid, were probably defective in many places.

No majority for Bitcoin

This is unlikely to improve the mood of the population towards the measure. In June, the move was announced quite surprisingly by President Nayib Bukele during an English-language conversation at a trade fair in Florida, and the relevant law was passed a few weeks later. And it was rather badly received: In a study by the University of Central America, 68 percent of those questioned stated that they did not support the introduction. This may also be due to another number: only 4.8 percent of the respondents knew what Bitcoin is and what it is used for.

This is also noticeable in everyday life. “I have now accepted Bitcoin for two months since they announced it,” taxi driver Daniel Hercules told the BBC. “Someone just paid a ride to the airport with $ 40 in Bitcoin. But it’s very rare.” He sees the money he earns more as a savings account. At ten percent, the cost of converting it into cash is simply too high, he explains. At the same time, he is afraid that the currency will collapse. “That worries me a lot. Losing the money on long working days would not be acceptable to me.”

Start with a crash

In fact, the first crash occurred on Tuesday. The government had announced that it would buy 400 Bitcoin worth 17.5 million euros. In order to fulfill the promise of the entry fee, a total of almost 170 million euros would have to be invested. That had pushed the prices for cryptocurrencies up shortly before the start. When it started, the course went down steeply. Bitcoin had lost almost 20 percent in the meantime, and after a slight upward correction, the loss is still just under 10 percent. No wonder, then, that many Salvadorans fear that the national currency could collapse. And therefore took to the streets en masse on Tuesday.

McDonald's and fear of falling: El Salvador relies on Bitcoin as its state currency: the bumpy start into the future

Unexpected alliances are formed during the protests. Hundreds of civil war veterans in the eighties stood together on the streets in August against the local crypto currency, ex-military men and Marxist guerrillas stood side by side to demonstrate for pensions to be hedged against a Bitcoin crash. “This is an economic adventure,” said former guerrilla Juan Manuel Pineda the “Wall Street Journal”. And pointed out a very fundamental problem with the digital national currency. “How should we use Bitcoin if we don’t even have smartphones or can afford internet access?”

Not a mass phenomenon

“I think the main benefit in El Salvador will be to take over the purpose of transfers and save money,” said the chief economist of the data platform Cainalysis, Philip Gradwell, to “CNBC”. In fact, not even half of the population currently has a bank account, and a large part of the economy is processed in cash. “Bitcoin is not really designed as a means of payment,” Gradwell is convinced.

In fact, even some crypto fans believe that the government is gaining more insight into the economy through the currency than before. “You give all your data to the government, all financial movements, what goes in and what goes out,” the operator of an online trade, Oswaldo Serrano, explains to the “Wall Street Journal” his fears about central processing via the government app Chivo.

There could also be problems with the traditional banking system. Every year Salvadoran immigrants from the USA send almost 5 billion euros home. This should now also be possible in Bitcoin. “Because El Salvador now has two currencies, the question arises whether the Bitcoin ecosystem will now get its dollars from El Salvador. And whether the US agrees,” a top manager of an investment bank explains to the “Journal”.

If you look on social media, you will also find numerous more optimistic posts. The joy is especially great in the crypto community. “I just went to McDonald’s to see if I could pay in Bitcoin,” tweeted Aaron van Widun. “To be honest, I didn’t expect it. But they actually printed out a QR code that I could use to pay. Now I’m going to enjoy my breakfast.” Others filmed themselves paying at Star Bucks or Pizza Hut. Enthusiast Jack Mallers literally celebrated the president and his decision. “It’s a small step for Bitcoin, but a giant leap for humanity.”

Sources:Wall Street Journal, BBC, CNBC, Twitter

Hasan Sheikh
Hasan, who loves technology and games, is studying Computer Engineering at Delhi JNU. He has been writing technology news since 2016.


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