From today, September 7, El Salvador is officially the first country to accept bitcoin as legal tender as a law passed on June 9 comes into effect.
The law states that businesses in the Central American country must accept bitcoin unless they lack the technology required. The proposal passed with 62 of 84 possible votes. Bitcoin will be accepted alongside the US dollar, which will still be used to pay salaries and pensions. This move comes 20 years after the US dollar replaced the Salvadoran colón as the country’s currency in 2001.
To facilitate the adoption of the cryptocurrency as legal tender, the government is setting up more than 200 cash machines for bitcoin conversions and a digital cryptocurrency wallet app named Chivo – which is slang for “cool”. Citizens will be able to sign up to the app with their national ID, and will receive $30 worth of bitcoin upon signing up as an incentive.
However, the app seems to have had a bumpy start, going offline after users complained of installation problems. Nayib Bukele, president of El Salvador, said in a tweet that Chivo was disconnected while server capacity was being increased.
Bukele has also tweeted that the country now holds 400 bitcoin. This is worth $20,415,085.6 at the time of writing according to CoinDesk. An investment of three bitcoins ($151,937.4) will allow foreigners to gain residency in El Salvador.
A major goal of adopting bitcoin seems to be saving money on remittances, money transferred to people in the country from overseas. Remittances to El Salvador annually come to around $6 billion, a hefty chunk of the gross domestic product. President Bukele has said that this move will save citizens $400 million annually, for example by avoiding bank charges for sending money.
However, El Salvador’s shift towards cryptocurrency has been controversial – in fact, CNBC has reported that a survey by the Central American University indicated almost 70 percent of Salvadorans disagreed with the move. Protests have even broken out in opposition of the adoption of bitcoin.
Some critics think that the adoption of bitcoin might fuel money laundering in the country. The worth of bitcoin is also prone to wildly fluctuating, with some worried that their savings will be vulnerable to crashes in price.
With El Salvador being the first country to adopt bitcoin as legal tender, only time will tell how this move will pan out. “Like all innovations, El Salvador’s bitcoin process has a learning curve,” said Bukele.