El Salvador’s bitcoin experiment sees digital wallet go offline on day one

8 Sep 2021

Image: © Serhii/Stock.adobe.com

The Chivo digital wallet operated by Bitso saw teething problems as El Salvador adopted bitcoin as legal tender.

Tuesday 7 September marked day one of bitcoin becoming legal tender in El Salvador.

President Nayib Bukele is confident in his bet that making the world’s most popular cryptocurrency will boost the US dollar-based economy of El Salvador, save on transaction fees for money sent from abroad, and encourage investors to spend more in the country. However, the move was not without its issues.

Prior to the shift, the Central American nation invested in 400 bitcoin. Domestic users were also promised the equivalent of $30 in free bitcoin if they signed up for the national digital wallet, Chivo.

Chivo (also a slang term meaning ‘cool’ in El Salvador) is operated by Bitso, a major cryptocurrency platform in Latin America backed by Coinbase and Ripple.

Bitso is working with US-regulated Silvergate Bank to facilitate US dollar transactions, while Athena Bitcoin is providing some front-end services and operations for the 200 bitcoin ATMs now installed across the country.

The decentralised blockchain underpinning the digital wallet is Algorand. In August, El Salvador signed a cooperation agreement with blockchain-as-a-service provider Koibanx to build its blockchain infrastructure using Algorand.

Bitso told Cointelegraph that there would be no fees for withdrawals, deposits or other transactions made using the Chivo app.

However, the roll-out of Bitso’s digital wallet didn’t run smoothly. Reports from Reuters and BBC revealed that Salvadorans trying to download Chivo early on Tuesday found it was unavailable on popular app stores such as Apple’s App Store and Huawei’s app platform.

It was later tweeted by Bukele that servers were struggling to meet demand, and so the Chivo digital wallet was temporarily disabled just hours after El Salvador began its great bitcoin experiment.

It was decided to unplug the service while server capacity was increased. By the end of the day, users were able to make purchases in Starbucks and McDonald’s using bitcoin.

One of the chief criticisms levelled at the move to mainstream bitcoin is that the cryptocurrency is notoriously volatile.

During the first day of it being legal tender in El Salvador, bitcoin’s value dropped from more than $52,000 to less than $46,000. At one point, it reached its lowest value in almost a month, at under $43,000.

Other criticisms stem from the rapidity with which the new law was adopted. El Salvador politician Johnny Wright Sol told the BBC that the legislation to approve bitcoin as legal tender was passed in about five hours.

Further criticism of the decision to make bitcoin legal tender in El Salvador has come from its citizens, with more than 1,000 people staging a protest as the law came into affect.

According to the Central American University, nearly 70pc of Salvadorans surveyed disagreed with the government’s decision. Furthermore, less than 5pc correctly identified bitcoin as a cryptocurrency, while 20pc of respondents indicated that they did not know what bitcoin was.

Elaine Burke is the editor of Silicon Republic

editorial@siliconrepublic.com