News from June this year of El Salvador’s adoption of BTC as legal tender has spread through the crypto space like wildfire. BTC maximalists like Michael Saylor & Max Keiser have championed this development as a massive win, although once you start to look under the hood, it appears El Salvador’s adoption of BTC is far from something cryptocurrency enthusiasts should consider a success. Below we evaluate some of the issues El Salvadorians have run into on their path to adopting BTC as currency.
Mandating acceptance of BTC
After making public statements numerous times about how acceptance of BTC would be optional for businesses, much to the displeasure of local business owners, the Bitcoin Law that eventually went into effect in September includes an article mandating the acceptance of BTC. This was met with significant backlash, as Salvadorans took to the streets in protest, wielding “no Bitcoin” signs & t-shirts.
Unreliable internet
Months following Nayib Bukele’s June announcement that El Salvador was going to make BTC legal currency, a survey was conducted which found that only 45% of the country’s population had access to reliable internet. This obviously hinders the ability for citizens to use BTC for payments.
High fees
BTC’s high fees (currently $4.99 on 12/6/21) & limited throughput (~7 transactions per second) make it difficult to use for casual transactions. Considering El Salvador’s status as a third world country & the financial constraints the country’s citizens face, $5 fees simply aren’t viable for a legal currency. The proposed solution to this problem is to use the Lightning Network (LN), a Blockstream product that’s been under development for several years & has yet to see any significant adoption.
The Lightning Network doesn’t work
While you’ll see a lot of talk on Twitter about how BTC users should simply use the Lightning Network for small / casual payments, it doesn’t seem many people actually ever get so far as logging a transaction on LN. El Salvador chose to go this route, implementing LN payments within their government mandated Chivo Wallet. The problem here is that using LN can be complicated. Sending someone Bitcoin over the Lightning Network is like sending someone an email by downloading the desired packets of data onto a flash drive, & over-night shipping the drive to their house where the recipient unboxes it, plugs it in, & downloads the data to render the email. Because of the complicated nature of LN, it appears Chivo Wallet’s Lightning integration isn’t working as planned. As a result, many users have lost funds. Some users have migrated over to Chivo coin / Chivo Ledger - a proprietary, centralized solution for payments that has arisen amid the failure to successfully implement Lightning for BTC payments.
Chivo Wallet mandate
Similar to how acceptance of BTC was mandated for businesses, the Bitcoin Law also mandated the use of the Bitcoin wallet, Chivo Wallet. Chivo Wallet is a private company funded by the Salvadoran government - this essentially means that on the back end the government is managing the keys for, & is in control of the funds of each Chivo Wallet user. Basically the Salvadoran government maintains the ability to seize the funds of any Chivo Wallet user. This is where you’d expect BTC maximalists to break out the old crypto saying “not your keys, not your coins,” but it seems many of them have turned a blind eye to this issue in favor of celebrating El Salvador’s adoption of BTC in an attempt to pump their bags.
Ultimately, despite the amount of attention & hype among the cryptocurrency community you’ll see on Twitter & other social media platforms, El Salvador’s adoption of BTC as legal tender has largely been a failure. There has been a failure to effectively implement BTC as a payment solution, the people are protesting in mass against Bitcoin-related mandates, & the government has ultimately used BTC as a mechanism for gaining further financial oversight of its people. Anyone who’s been in the Bitcoin space long enough can’t objectively look at these developments & describe them as a win for the crypto industry.