Bitcoin’s first week in El Salvador: enforcement issues and regulatory uncertainty

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Despite all the excitement surrounding Bitcoin in El Salvador, its first week was plagued by application errors, vague regulations, and a lack of public education on cryptocurrencies and blockchain technologies.

After President Nayib Bukele announced his intention to introduce Bitcoin as legal tender during a live broadcast at the Bitcoin 2021 conference in June, the law was approved days later. This kicked off a three-month period for businesses to become compliant when the law went into effect on September 7.

During this time, the government rushed to roll out the Chivo wallet app, launched it just before the Bitcoin law went into effect, and is still battling service issues. The President and Congress also added a new section to the Bitcoin Act that said people and businesses without “access to technologies that allow them to conduct bitcoin transactions are excluded” from the obligation to accept it but did not specify how to request it. such exemption.

Politics and disinformation cloud legitimate concerns

Even with all the hiccups, Nolvia Serrano, chief marketing officer at San Salvador-based fintech startup BlockBank, said the reports of widespread protests against Bitcoin adoption have been exaggerated.

“I’m not saying everyone wants it. I’m sure, absolutely, that there are a lot of people out there who don’t want Bitcoin, ”she said. “Corn [people outside El Salvador] miss that it is political. The protests were more about the president trying to get two terms in power. So there are all these mechanics and dynamics in the country that explain what is really going on.

What’s more, she said, is that legitimate concerns are being stifled by Bukele’s political rivals who themselves lack a solid understanding of how Bitcoin works.

“There are so many concerns that are legitimate, in my opinion – for example, the volatility of Bitcoin. But there is also other information that has been released by the opposition that is not correct, ”Serrano said. “I was listening to the general manager [Leonor Selva] from the Association of Private Businesses of El Salvador, and she likened Bitcoin to holding a piece of paper that says it’s $ 5, which it absolutely isn’t.

This is why one of his most pressing concerns about Bitcoin has been the lack of public education. Working in a financial technology company means that they are familiar with cryptocurrencies and understand the risks involved in using them. But she worries that Salvadoran unbanked population – over 70%, according to one estimate – hasn’t received much advice.

The hands-on approach used by the founders of Bitcoin Beach, while admirable, has been difficult to scale.

“On September 11, when there was a big Bitcoin celebration, they came. They weren’t even having parties or anything, ”Serrano said. “They were just helping all the lines of people trying to upload their wallets.”

Accessibility of the Chivo application and data privacy issues

Even with help, signing up for the Chivo wallet was a struggle.

Fernando Argumedo, a Central Law attorney based in San Salvador, practices corporate law. It mainly focuses on intellectual property, technology and data privacy.

He was unable to download the app on his two cell phones or his tablet. Even though he could, Argumedo said one of his main complaints about Chivo was its privacy policy. It indicates that by using the application, users consent to share their data “with other related institutions or companies, as permitted by law”.

This kind of vague warning got him and others thinking, mainly because there is no legal clarity on what can be shared or with whom.

Argumedo said there was a congressionally approved data privacy bill that Bukele rejected earlier this year. But while Bukele has been in power for two years, the new assembly – which is now politically aligned with his party – took office in March. And so far, there is no indication that the new lawmakers will update and resubmit the data protection law for presidential approval.

“Considering this, we don’t have any specific law or regulation to allow you to understand how your data will be treated,” Argumedo said. “So it’s a particular concern for people who are more concerned about their data and their privacy. “

There are alternatives to Chivo. The strike of Jack Maller, once considered the heir apparent to the government-sponsored portfolio, is one of them.

The strike is a viable option as it began operating in El Salvador before the Bitcoin law came into effect. For existing applications and financial institutions, the government has issued guidelines on how to comply with Bitcoin regulations. For new entrants, it is not clear how to enter the market.

“For new companies that want to provide new services related to Bitcoin,” Argumedo said, “these rules have not yet been published”.

Another complaint about Chivo has been the fact that it is structured like a private company, but funded with public money. There was no government subcontracting process soliciting bids from companies. And, so far, it seems that no government official is responsible for it.

Argumedo said companies who want to use the app have had problems creating accounts. The application specifies that professional accounts must be created by the legal representative of a company. It becomes an obstacle when a company’s legal team is based in another country, he said.

“These are people who have a resident card, they have a passport, but they cannot create an account because they do not have a unique Salvadoran identification,” he said, “it is is therefore another concern “.

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