Bitcoin is struggling in El Salvador, the first country to make the crypto asset legal tender, according to a new report. According to the National Bureau of Economic Research, a US-based non-profit research organisation, the majority of people in El Salvador have not taken to crypto payments freely although there is optimism among businesses that BTC will gain mainstream traction over time. In September 2021, El Salvador became the first country in the world to allow people to use Bitcoin alongside the US dollar for all transactions.
Researchers Fernando E. Alvarez, David Argente, and Diana Van Patten say they spoke to 1,800 households in El Salvador face-to-face about their Bitcoin habits. Their report, titled “Are Cryptocurrencies Currencies? Bitcoin as Legal Tender in El Salvador,” claims that “usage of Bitcoin for everyday transactions is low and is concentrated among the banked, educated, young, and male population.”
It adds that only 20 percent of respondents in the Central American country were using the state-sponsored wallet, Chivo, after downloading it. And among those who do use it, according to the report, only 10 percent were spending less cash, and 11 percent using less debit or credit cards.
The report also notes that it did “not find evidence of Chivo wallet being used to pay for taxes or to send remittances” — a major reason the Bitcoin law was passed in the first place, according to the Salvadoran government.
Citizens of El Salvador were encouraged to download Chivo last year and were given $30 (roughly Rs. 2,300) worth in Bitcoin as a sign-up reward. The report says that of those surveyed, most just spent the Bitcoin and stopped using the wallet.
“We also document that, on average, only 4.9 percent of all sales are paid in Bitcoin, and that 88 percent of businesses transform money from sales in Bitcoin into dollars, and do not keep it as Bitcoin in Chivo Wallet,” the report adds, further highlighting that only 20 percent of businesses surveyed reported accepting Bitcoin as payment.
That said, the government is confident that its Bitcoin push will reap positives in due time. Back in November 2021, President Nayib Bukele announced plans to build a “Bitcoin City” funded by the sale of the bonds, which have an annual coupon of 6.5 percent. He then mentioned that half the funds will be used to accumulate Bitcoin, while the rest would be earmarked for infrastructure and Bitcoin mining powered by geothermal energy.
Earlier this year, El Salvador decided to relaunch its Chivo crypto wallet in an apparent bid to fix a series of problems within the state-run Bitcoin wallet, including blocked accounts, unauthorised charges, and failed transactions.
The Chivo wallet has faced technical issues since its roll-out in September 2021, and the government has confirmed that it had roped in US-based company AlphaPoint to help provide a better tech infrastructure for the wallet going forward.