Bitcoin, now legal tender in El Salvador, greeted with tech problems, volatility concerns
President says digital wallet used for cryptocurrency transactions wasn't functioning
El Salvador became the first country to adopt bitcoin as legal tender Tuesday, but the rollout stumbled in its first hours and President Nayib Bukele informed that the digital wallet used for transactions was not functioning.
For part of the morning, El Salvador's president became tech support for a nation stepping into the world of cryptocurrency. Bukele marshaled his Twitter account — with more than 2.8 million followers — to explain that the digital wallet app Chivo had been disconnected while server capacity was increased.
The president said it was a relatively simple problem. "We prefer to correct it before we connect it again," Bukele said, encouraging his followers to download the app and leave comments about how it was going.
El Salvador's Legislative Assembly enacted the bitcoin law in June, and the Central American Bank for Economic Integration is providing the government with technical assistance. The law says bitcoin can be used for any transaction and any business with the technological capacity to do so must accept payment in the cryptocurrency.
The government will back bitcoin with a $150 million US fund, and as an incentive, it offered $30 worth of credit to those who use Chivo.
Meanwhile, bitcoin's value plummeted early Tuesday, dropping from more than $52,000 US per coin to $42,000 US, before recovering about half of that loss — an example of the volatility that worries many.
Citizens greet move with curiosity, questions
The government has promised to install 200 Chivo automatic tellers and 50 bitcoin attention centres.
The Associated Press visited one of the automatic tellers in San Salvador's historic centre, where attendants waited to help citizens, who initially didn't show much interest.
Asked if he had downloaded the Chivo app, Emanuel Ceballos, said he had not. "I don't know if I'm going to do it, I still have doubts about using that currency."
Jose Martin Tenorio said he was interested in bitcoin, but had not downloaded the app either. "I'm running to work. Maybe at home tonight."
In Santa Tecla, a San Salvador suburb, young attendants were waiting to assist people at a help centre.
Denis Rivera arrived with a friend because they had been trying to download the digital wallet app without success.
He said he didn't understand why some have been "scandalized" by bitcoin. "We've been using debit and credit cards for years and it's the same, electronic money."
Rivera said he was in favour of it and planned to use the $30 US offered by the government as an incentive to try it out. "I'm going to see how efficient it is and practical it can be and based on that decide if I keep using it or not."
Jose Luis Hernandez, who owns a barbershop in the area, came looking for information.
"I have a small business and I want to know how to use the application and how are the rates and all of that," he said.
Three face-to-face public opinion surveys performed recently showed that most Salvadorans did not agree with the government's decision to make bitcoin legal currency.
Bitcoin joins the U.S. dollar as the two official currencies of El Salvador
Currency's volatility a worry, critics warn
Critics have warned that the currency's lack of transparency could attract increased criminal activity to the country and its wild swings in value could quickly wipe out users' savings.
David Gerard, author of Attack of the 50 Foot Blockchain, said Tuesday's volatility likely had little to nothing to do with El Salvador.
"My first guess was shenanigans, because it's always shenanigans," Gerard said via email.
"Bitcoin basically doesn't respond to market forces or regulatory announcements," he said. "That sort of price pattern, where it crashes hugely in minutes then goes back up again, is usually one of the big guys burning the margin traders."
Because bitcoin is so thinly traded, Gerard said it could also have been a big holder making a large sale to have cash, thus sending the market for a ride.
Bukele has said the cryptocurrency — originally created to operate outside government controlled financial systems — would help attract investment and save Salvadorans money when they transfer earnings in the United States back home to relatives in El Salvador. But its use would be voluntary.