El Salvador, the world’s first adoption of bitcoin, experiences a turbulent first day

SAN SALVADOR, Sept. 7 (Reuters) – El Salvador’s historic adoption of bitcoin as legal tender on Tuesday was plagued by start-up problems, as an outburst of anger from suspicious citizens, tech glitches and a drop in cryptocurrency clouded the rollout.

The daring experiment got a chaotic start when, shortly after midnight, Salvadoran President Nayib Bukele complained that the government-backed Bitcoin app was not available on various internet platforms, including Apple and Huawei ( HWT.UL).

Bukele used his Twitter account to push online stores to store the app or digital wallet, known as Chivo, and Huawei then started making it available. But when the app proved unable to handle user records, the government unplugged it in order to connect to more servers and increase capacity.

Yet as the app began to appear on more and more platforms, Bukele in the afternoon retweeted videos posted to social media with people making payments using bitcoin at retailers. in El Salvador, notably McDonald’s Corp (MCD.N) and Starbucks Corp (SBUX.O).

“El Salvador is taking a big step forward today,” said Carlos Garcia, who visited a booth in a shopping center in San Salvador to give advice on how the new currency works.

Promising $ 30 worth of bitcoin for each user, Bukele lobbied for its adoption, saying it would help Salvadorians save $ 400 million a year in commissions for remittances, while giving access to financial services to people without accounts. banking.

“We have to break the paradigms of the past,” Bukele tweeted. “El Salvador has the right to advance to the first world.”

Bukele, 40, is one of the most popular presidents in the Americas, but has been accused of eroding democracy. Opinion polls have shown Salvadorans are skeptical about the use of bitcoin, fearing its volatility and not knowing how it will work.

More than 1,000 people demonstrated in San Salvador on Tuesday against the adoption of bitcoin, burning a tire and setting off fireworks in front of the Supreme Court.

As the currency’s price faltered, the government bought an additional 150 bitcoins on Tuesday, worth around $ 7 million.

Yet the poorest may struggle to access the technology needed to make bitcoin work in El Salvador, where nearly half the population lacks internet access and many others only have connectivity. uneven.

“I’m going to continue to suffer with or without bitcoin,” said candy seller Jose Herrera, who said he struggled to access a cell phone.

Some say the adoption of bitcoin can fuel illicit transactions and financial instability. It has already blurred the outlook for more than $ 1 billion in funding that El Salvador is seeking from the International Monetary Fund (IMF).


A Bitcoin logo can be seen outside the Sevilla Barber Shop where Bitcoin is accepted as a method of payment in Santa Tecla, El Salvador on September 6, 2021. REUTERS / Jose Cabezas

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Before launch, El Salvador bought 400 bitcoins worth around $ 20 million, Bukele said, helping its price to exceed $ 52,000 for the first time since May. Hours later, bitcoin had weakened and was last trading down 8.84% to $ 47,327.32.

Ethereum, another crypto currency, fell 10.52% to $ 3,537.62, while crypto exchange Coinbase Global (COIN.O) slipped 3.96% after reporting delays in some transactions on its platform.

This change means businesses must accept bitcoin payments alongside the US dollar, which has been El Salvador’s official currency since 2001 and will remain legal.

It is not yet known whether companies will be penalized if they do not accept bitcoin.

Ahead of the launch, the government has installed ATMs that convert bitcoins into dollars and withdraw them commission-free from the Chivo digital wallet.

Bukele blamed Apple Inc (AAPL.O), Alphabet’s Inc (GOOGL.O) Google, and Huawei’s app download platforms for Chivo’s initial delay.

“Free him! @Apple @Google and @Huawei,” Bukele wrote in a tweet, accompanied by a red-faced “angry” emoji.

The wallet was then available from Huawei and Apple.

“Like all innovations, El Salvador’s bitcoin process has a learning curve,” Bukele said in a tweet. “Not everything will be done in a day or a month.”

In just two years in power, Bukele has taken control of almost every lever of power. But despite promising to clean up corruption, the Biden administration recently put some of its close allies on a corruption blacklist.

Last week, the top judges appointed by Bukele lawmakers ruled he could serve a second term, breaking with a constitutional rule that prohibited consecutive terms.

Analysts fear that the adoption of bitcoin, whose transaction records are disseminated over the Internet beyond the reach of national jurisdictions, may encourage money laundering.

After the bitcoin law was approved, rating agency Moody’s downgraded El Salvador’s creditworthiness, while its dollar-denominated bonds also came under pressure.

The World Bank reiterated on Tuesday that it could not help El Salvador adopt bitcoin “given the environmental and transparency gaps,” a bank spokesperson told Reuters.

Reporting by Anthony Esposito in Mexico City and Nelson Renteria in San Salvador; Additional reporting by Wilfredo Pineda in El Zonte, El Salvador, and Frank Jack Daniel; Editing by Dave Graham, Daniel Flynn, Rosalba O’Brien and Matthew Lewis

Our standards: Thomson Reuters Trust Principles.

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