Factbox-An Under the Hood Sneak Peek of El Salvador’s Bitcoin Experience

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By Anthony Esposito and Nelson Renteria

SAN SALVADOR (Reuters) – El Salvador on Tuesday rolled out cryptocurrency bitcoin as legal tender, an unprecedented move that ran into technical issues on day one and left many people wondering how it would work.

President Nayib Bukele, who has championed the initiative, said digital currency will be optional in the poor, dollarized country, but its use will eliminate the commissions Salvadorians abroad pay to send funds home.

WHAT THE LAW SAYS

Salvadoran bitcoin law states that the market will set the exchange rate between the cryptocurrency and the US dollar, the country’s other legal tender. It states that all prices can be expressed in bitcoin and that tax contributions can be paid in digital currency, while bitcoin currency transactions are not subject to capital gains tax.

For accounting purposes, the dollar will be the reference currency.

The law states that “economic agents” must accept bitcoin as a means of payment for goods and services offered, although it makes exceptions for those who do not have access to the technology necessary for such transactions.

Bukele said companies can choose at the time of a bitcoin transaction to receive dollars or digital currency as a form of payment.

“The use of bitcoin will be optional, no one will receive bitcoin if they don’t want it… If someone receives a payment in bitcoin, they can choose to automatically receive it in dollars,” Bukele said in late June.

Popular Bukele, 40, also said salaries and pensions would continue to be paid in US dollars, without specifying whether this included salaries paid to civil servants and private sector employees.

CHIVO WALLET

At least 200 ATMs and 50 advice centers of the government digital wallet app “Chivo” are being installed across the country, where users can deposit and withdraw money without paying commissions, said Bukele.

His plan includes a $ 30 bitcoin bonus for those who use “Chivo”, named after a local word for something “good” or “nice.”

The story continues

The Congress of El Salvador approved a law at the end of August creating a fund of 150 million dollars to facilitate conversions from bitcoin to US dollars.

Chivo was available on platforms hosted by Apple and Huawei on Tuesday, after Bukele criticized the tech giants for not implementing the app.

TECHNOLOGY

Fintech Bitso, a cryptocurrency platform, said it will be Chivo’s primary service provider and will work with Silvergate Bank, a U.S. federally regulated and California state-chartered bank, to facilitate transactions in US dollars.

McDonald’s Corp and Starbucks said they have started accepting cryptocurrency at its restaurants in El Salvador. OpenNode, a bitcoin payment processor, said McDonald’s accepts payments on the Lightning Network platform it powers.

The Salvadoran seaside town of El Zonte, part of an experiment launched in 2019 called Bitcoin Beach, uses the Lightning network to enable smaller transactions.

Its use has overcome some technical and practical obstacles to the use of bitcoin, according to the founders of Bitcoin Beach. But some in El Zonte say they rarely use bitcoin due to issues with outdated and damaged smartphones or insufficient data plans.

A 2020 study by Microsoft and the Inter-American Development Bank found that El Salvador had the second-lowest internet penetration rate among 20 countries in Latin America and the Caribbean. At 45%, connectivity was only weaker in neighboring Honduras.

Salvadorans are also wary of volatility. Bitcoin can lose hundreds of dollars in value in a day.

Prior to the launch, El Salvador bought 400 bitcoins worth around $ 20 million, Bukele said, helping to push the price of the currency above $ 52,000 for the first time since May. Hours later, bitcoin had weakened and last traded 0.23% to $ 46,906.11.

(Compiled by Anthony Esposito and Nelson Renteria; edited by David Gregorio)

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