It’s been a year since El Salvador became the first country in the world to adopt Bitcoin (BTC) as a legal tender. The decision was considered a footprint for the rest of the countries intending to go down the same path at a point Bitcoin is still undergoing maturity.
At the adoption date on September 7, 2021, Bitcoin was trading at $47,767 but has since lost its value by 60.52%, trading at $18,857 by press time. Interestingly, during the period, Bitcoin also attained an all-time high of almost $68,000 in late 2021. Besides the price, the adoption has faced a myriad of challenges.
The decision to adopt Bitcoin saw the government embark on an ambitious plan to market El Salvador as the crypto hub. The plan entailed initiatives like the accumulation of Bitcoin.
Plunging Bitcoin wallets downloads
To promote the adoption of Bitcoin, the El Salvadoran government unveiled the Chivo digital wallet, where residents would get a $30 bonus for downloading. However, the state has not shared data on the wallet’s use. Barely a month after the legalization of Bitcoin, President Nayib Bukele claimed that about 25% of the country’s population was using the wallet.
Interestingly, a survey by the National Bureau of Economic Research (NBER), a U.S.-based NGO, revealed that only 20% of residents who downloaded the app initially are still using it. Notably, most only downloaded the wallet to utilize the free credit. Reports indicate that almost no downloads have been made in 2022.
Furthermore, President Bukele had promised to build a “Bitcoin City,” a plan that has not been realized to date. The city was aimed to be a taxed haven for crypto companies setting up camp in the country.
Despite the lack of progress on the Bitcoin city, El Zonte, a beach in El Salvador that has been renamed “Bitcoin Beach,” is expected to receive over $200 million in infrastructure upgrades in a plan to be implemented by the government.
Most importantly, the main stumbling block in the country’s Bitcoin adoption has been a lack of sufficient education and trust in using the flagship cryptocurrency. At the same time, the resident’s motivation to utilize Bitcoin has been affected by the asset’s high volatility.
In support of the initiative, a new law was passed requiring all companies to accept cryptocurrencies. However, only 20% of them have opted to incorporate digital assets in their system.
Although Bitcoin’s legal status was meant to boost the economy, the initiative appears to be stumbling. For instance, the recent collapse in Bitcoin’s value has complicated matters for the country as it searches for funds to pay $1.6 billion of sovereign bonds due in 2023 and 2025.
Pressure to revise Bitcoin legal tender status
Furthermore, El Salvador’s decision continues to receive criticism from international entities. In this case, the International Monetary Fund (IMF) has been pushing the country to revise Bitcoin’s legal tender status citing financial, economic, and legal concerns.
It is worth mentioning that the El Salvador adoption has inspired other countries in the region to consider Bitcoin. Most countries suffer from economic hardship characterized by high inflation and devaluation of local currencies. Therefore, the situation makes Bitcoin a perfect option since the asset acts as a hedge against hard economic times.
In the meantime, President Bukele remains defiant, maintaining that the Bitcoin strategy is on course.