El Salvador botches Bitcoin adoption

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Salvadoran President Nayib Bukele declared on June 5 that bitcoin, the first cryptocurrency, would be legal tender in El Salvador. A few days later, the Bitcoin law was passed, to come into force on September 7. Businesses would be required to accept bitcoin for all payments.

Bitcoin was originally created to be a form of money outside of government control. There were a number of obvious problems with using bitcoin as a government-approved currency: cryptocurrency has a huge money laundering problem, the price of bitcoin is incredibly volatile, and cryptocurrencies remain tough and tough. cumbersome to use.

Building a payment system that people trust takes time. You need to run pilot programs and fix the kind of issues that only appear in production. Deploying a system from scratch nationwide in just three months without any testing is a recipe for disaster, especially when that system is an electronic payment system in an economy that was still largely operating on cash. physical money (US dollar bills) and had widespread distrust of banks and strong memories of the precipitous dollarization of 2001.

Salvadoran President Nayib Bukele declared on June 5 that bitcoin, the first cryptocurrency, would be legal tender in El Salvador. A few days later, the Bitcoin law was passed, to come into force on September 7. Businesses would be required to accept bitcoin for all payments.

Bitcoin was originally created to be a form of money outside of government control. There were a number of obvious problems with using bitcoin as a government-approved currency: cryptocurrency has a huge money laundering problem, the price of bitcoin is incredibly volatile, and cryptocurrencies remain tough and tough. cumbersome to use.

Building a payment system that people trust takes time. You need to run pilot programs and fix the kind of issues that only appear in production. Deploying a system from scratch nationwide in just three months without any testing is a recipe for disaster, especially when that system is an electronic payment system in an economy that was still largely operating on cash. physical money (US dollar bills) and had widespread distrust of banks and strong memories of the precipitous dollarization of 2001.

But in an echo of the Silicon Valley model of Move Fast and Break Things Up, the government has tried to sell speed and wholeness as an advantage. A government official said: We can do it slowly, or we can just make it depend on people and people will learn. If they are forced to do it, they will learn and they will learn quickly.

Salvadoran government figures have repeatedly claimed that acceptance of bitcoin will be entirely voluntary and on several other occasions that it will be mandatory. Section 7 of the Bitcoin Act, which makes acceptance of bitcoin mandatory, remained in place.

In a July poll, 49% of those polled did not know how the Bitcoin project would unfold; 29 percent were afraid. 76 percent had Internet access, but this included low-cap data plans; other surveys have shown that a reliable Internet is available to 45 percent of the population, and less than 10 percent in rural areas.

Bukele announced an official bitcoin wallet, Salvadoran chivo slang for cool. It would work like PayPal, you would have a dollar balance and a bitcoin balance, held at Chivo. New users would get a signup bonus of $ 30 in bitcoin. 200 Chivo ATMs were deployed and 50 Chivo staffed kiosks were built across the country.

The Chivo app would be available internationally for remittances, dollars go into Chivo, the government subsidizes transmission costs and keeps real dollars, and the recipient receives virtual dollars which are numbers displayed in the ‘Chivo application.

Bukele announced the name of Chivo at the end of June, but the company operating the network, Chivo SA de CV, was not incorporated until August 24, two weeks before the launch. Chivo SA de CV is a private company, so it is not subject to freedom of information laws like a ministry would be, although it is funded by $ 60 million in public funds. The plan for Chivo was promoted by the president and his brothers Karim, Ibrajim and Yusef Bukele Ortez, who are considered the main advocates of bitcoin in the circle of presidents. The president’s chief of staff, Carolina Recinos, is on Engel’s US State Departments list of corrupt officials and is director of Chivo SA de CV.

The Bukeles team recruited people they saw as politically trustworthy, but not necessarily people who could do the job. Project Chivo is led by a Venezuelan team, a member of a long-standing shadow cabinet of unofficial advisers known to work with the Venezuelan opposition. Shadow cabinet chief Sara Hanna and cryptocurrency promoter Lorenzo Rey designed the Chivo network. Reys’ payment experience promoted an alternative cryptocurrency, Dash, as a payment and remittance channel in Venezuela, but many Venezuelan merchants listed as accepting Dash were not even able to. be verified as existing.

In the run-up to the launch of the Bitcoin law, it has remained extremely unpopular. A public critic of the law, software developer Mario Gmez, was arrested without charge on September 1 and held for five hours before public outcry secured his release, although he still does not know why he was detained.

Chivo launched just after midnight on September 7. The system began to fail at three in the morning. Server capacity was increased and application installations were not reactivated until 11:30 am. customer service lines were blocked; Chivo ATMs have run out of cash.

Shortly after ten a.m., the price of bitcoin dropped $ 10,000 in three minutes. Chivo users saw their $ 30 in bitcoin drop below $ 25 in real time, solid hands-on training on bitcoin volatility. Bukele blamed the crash on the International Monetary Fund, although this was more likely due to a news leak from the crypto exchange Coinbase having received a warning from the United States Securities and Exchange Commission. Bukele had bought $ 20.6 million in bitcoin for the National Treasury the day before.

After the September 6 protests, more than 1,000 people marched in front of the Legislative Assembly on September 7, jumping barriers put up early that morning to prevent them from entering. A group of protesters set tires on fire. Opposition politicians attended the day session in No Bitcoin shirts.

The protests were not against bitcoin itself. People protested against the forced acceptance, the government’s utter lack of transparency and Chivo’s dysfunctional payment system, local businessman Patrick Murray said.

The problems go beyond ground use. Bukele is really very popular because he spends a lot on utilities. Since El Salvador’s currency is the US dollar, Bukele cannot print money; it must therefore use the Bitcoin law by the borrower to skim remittances sent from abroad. But the Bitcoin law, and the disastrous launch of Chivo, scared the bond markets; El Salvador’s sovereign debt fell nearly five cents in a single day, closing September 7 at 87.6 cents on the dollar. The World Bank and the International Monetary Fund are already reluctant to provide additional funding due to the Bitcoin law.

Chivos’ problems continue. To sign up for Chivo and get their $ 30 of bitcoin, Salvadorans apparently need a photo of their national ID card, a photo of themselves, their ID card number, and of their date of birth. But Chivos’ identity verification feature didn’t even verify the photos you could save with just a DUI number and corresponding date of birth. Some users discovered that their DUI number had already been used. Others have tested the system with publicly known DUIs. Residents who had not installed the app received verification codes via text message. Salvadorians in the United States who wanted to send funds home found it difficult to register.

Traders were reluctant to accept bitcoin. I’d rather lose the sale, said a trader in La Prensa Grafica. Others didn’t trust the money they couldn’t hold in their hands. Street vendors may not even have a phone. Many of their clients are illiterate. Some government offices did not accept bitcoin payments. Chivo’s transfers to bank accounts were unreliable. Chivo ATMs were not working well, one machine recorded three successful cash withdrawals in one day. Even transferring bitcoin to and from Chivo had problems. @Chivowallet’s tweets garnered aggrieved responses from people.

The use of Chivo is not mandatory, some install the Bitcoin Beach or Muun wallets. But interoperability is uneven, and transaction fees on Bitcoin Beach or Muun are not subsidized by the government.

September 15 was a public holiday to celebrate the 200 years of independence from Spain. An estimated 15,000 people have taken to the streets in massive protests, by far Bukeles ‘biggest presidency, not only against bitcoin, but against Bukeles’ removal of troublesome judges, resulting in a ruling of the Supreme Court allowing him to run again for president and a series of changes to the constitution.

A Chivo kiosk was set on fire and spray-painted with anti-Bukele graffiti, but this appears to have been a very obvious false flag: the vandals were wearing T-shirts that had been distributed to them from a vehicle belonging to distributing parcels emergency aid in the event of a pandemic.

Bukele is moving forward with Project Chivo, his plans need those transfer dollars, and he’s still hoping for an influx of foreign bitcoin. Fears that criminals would bring dirty bitcoin and exchange it for clean dollars, draining the $ 150 million trust that was put in place as a buffer between bitcoin and dollars, did not materialize because Chivo is not working not good enough.

It is not clear if or when the Chivo network will be fully functional. The identity verification system just doesn’t work and left a huge mess to clean up. Chivo’s customer service staff are funded on a monthly basis.

An electronic payment system could be of great benefit to El Salvador if it were designed to gain the trust of the public. But if Bukele wanted Salvadorans to hate everything about bitcoin and electronic payment systems in general, Chivo was a concrete example of how to make it happen.

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