El Salvador has become the first country in the world to make bitcoin (BTC-USD) legal tender. The world's largest cryptocurrency is now formally part of the nation's economy following an announcement made by president Nayib Bukele's government earlier in June.
The development comes amid protest and uncertainty as questions remain about bitcoin's integration into the country's financial system and general access to the new technology among Salvadorans where 32.7% of the population remains below the poverty line. Furthermore, only 58% of the population have access to the internet, which is necessary for bitcoin transactions.
Now that the law has come into effect every Salvadoran will soon be offered a government-run digital wallet containing $30 (£21.70) worth of bitcoin. This "Chivo Wallet" will be "easy to use," according to a statement from the legal adviser to the Salvadoran president, Javier Argueta.
The official added that the government "will promote the necessary training and mechanisms so that the population can access transactions in bitcoin."
President Bukele's administration has been keen to address concerns about article 7 of the new law, which stipulates that acceptance of bitcoin as payment is compulsory. However, in late August, his spokesman Ernesto Sanabria told CoinDesk that “the president has been clear in saying that the use of bitcoin is not mandatory."
Argueta has also reassured Salvadorans that, "the state will provide alternatives that allow the user to carry out transactions in bitcoin, as well as having automatic and instant convertibility from bitcoin to dollar if desired."
Another major concern among Salvadorans is that the law could eventually evolve to see salaries being paid in the cryptocurrency. However, the Salvadoran government in an official statement has said it will "guarantee that salaries, pensions and accounting operations will continue to be applied in dollars as the reference currency."
Regardless of Bukele’s reassurances, there remains a high degree of suspicion within El Salvador that the law has a hidden agenda. One attendee at a 'No Al Bitcoin' (No to Bitcoin) protest outside the legislative assembly in San Salvador articulated a common sentiment that "there must be something else behind this, I think it’s a scam for money laundering and will make us a tax haven for Bitcoin millionaires."
However, Argueta, the president's legal adviser, has dismissed these concerns as "disinformation generated by groups that are not from civil society" and "hinder what benefits the population."
Two surveys reveal the level of distrust within El Salvador towards the new law. A poll of 1,233 people run by Disruptiva at the beginning of July revealed that two-thirds of participants were not willing to be paid in Bitcoin.
A more recent study conducted in late August by El Salvador's University of Central America (UCA) revealed a high level of negative sentiment towards the bitcoin law. The survey found that 80% of 1,281 people polled had no trust in bitcoin and only 17% think it will improve the economy.
Suspicion of authority runs deep in El Salvador — a legacy of the nation's 12-year civil war. The two main political factions, the leftist FMLN and the right-wing ARENA party are in an unusual agreement in their mutual opposition to the bitcoin Law. However, the president’s own party, Nuevas Ideas, has yet to break ranks with their leader.
Argueta stated in June that El Salvador ... was “now in the eyes of many investors in the world.” He added that “other nations such as Argentina and Uruguay have expressed their interest in analysing the bitcoin law to approve it.”
Since then, lawmakers in both Paraguay and Uruguay have proposed their own bitcoin legislation. In mid-August, president of Argentina Alberto Fernandez told one of the nation’s media channels that he was open to making bitcoin legal tender in the country.
Nations in other parts of the world, especially those with currencies pegged to the dollar, are keen to see if bitcoin could offer them more monetary autonomy.
However, Nelson Rauda Zablah, from Salvadoran news outlet El Faro, urged empathy towards El Salvador's citizens who are in effect becoming guinea pigs in the world's first state-run cryptocurrency experiment. He called for those “cheering the president from the sidelines” to consider what it would be like if their own national economy was about to be tossed into a "virtual casino," and it was "their own business, credit rating, pension scheme, or savings at stake.”