The historic adoption of Bitcoin as a legal currency in El Salvador on Tuesday was marred by initial problems, such as a furious protest from suspicious citizens, technological failures and a drop in cryptocurrency hindered the launch.
The daring experiment got off to a rocky start when, just after midnight, Salvadoran President Nayib Bukele complained that the government-backed Bitcoin application was not available on several Internet platforms, including Apple and Huawei. Bitcoin price in India was at Rs. 37.4 lakhs from 10am IST on September 8th.
Bukele used his Twitter account to pressure online stores to stock the app, or digital wallet, known as Chivo, and Huawei later started making it available. But when the app proved unable to handle user registrations, the government shut it down to connect to more servers and increase capacity.
Still, as the app began to appear on more platforms, Bukele was retweeting videos posted on social media in the afternoon with people making payments using Bitcoin at retailers in El Salvador, including McDonald’s and Starbucks.
“El Salvador is taking a big step today,” said Carlos Garcia, who came to a booth in a San Salvador shopping center giving advice on how the new currency would work.
Starbucks’ El Salvador unit said it was accepting Bitcoin for purchases at its restaurants, drive-through or take-out units.
Promising $30 (approximately Rs. 2,200) of Bitcoin for each user, Bukele pushed for its adoption, saying it will help Salvadorans save $400 million (about Rs. 2,940 crores) a year in commissions for remittances, while giving access to financial services for people without a bank account.
“We need to break the paradigms of the past,” tweeted Bukele. “El Salvador has the right to advance to the first world”.
Bukele, 40, is one of the most popular presidents in the Americas, but has been accused of eroding democracy. Opinion polls have shown that Salvadorans are skeptical about the use of Bitcoin, fearing its volatility and not sure how it will work.
More than 1,000 people staged a protest in San Salvador on Tuesday against the adoption of Bitcoin, burning a tire and setting off fireworks in front of the Supreme Court.
With the currency price fluctuating, the government bought an additional 150 Bitcoins on Tuesday, worth about $7 million (about Rs. 51.4 crores).
Still, the poorest may find it difficult to access the technology needed to make Bitcoin work in El Salvador, where nearly half the population has no Internet access and many more have patchy connectivity.
“I will continue to suffer with or without Bitcoin,” said candy vendor Jose Herrera, who said he had trouble accessing a cell phone.
Some say Bitcoin adoption can fuel illicit transactions and financial instability. It has already clouded the prospect of more than $1 billion (about Rs. 7,350 crores) in financing that El Salvador is seeking from the International Monetary Fund (IMF).
Before launch, El Salvador bought 400 Bitcoins worth about $20 million (about Rs. 146 crores), said Bukele, helping to raise its price to more than $52,000 (about Rs. 38.2 lakhs). ) for the first time since May. Hours later, Bitcoin weakened and was last traded down 0.51% to $46,561.74 (about Rs. 34.2 lakhs).
Ethereum, another cryptocurrency, fell 0.32 percent to $3,404.05 (about Rs. 2.5 lakhs), while the Coinbase Global cryptocurrency dropped 4.18 percent after reporting delays in some transactions on its platform. The price of ether in India was at Rs. 2.77 lakhs from 10am IST on September 8th.
The change means that companies must accept payment in Bitcoin alongside the US dollar, which has been El Salvador’s official currency since 2001 and will remain legal tender.
It’s still unclear whether companies will be penalized if they don’t accept Bitcoin.
Prior to launch, the government installed ATMs that allow Bitcoin to be converted to dollars and withdrawn commission-free from the Chivo digital wallet.
Bukele blamed Apple, Alphabet’s Google and Huawei’s app download platforms for Chivo’s initial delay.
“Let him go! @Apple @Google and @Huawei,” Bukele wrote in a tweet, which was accompanied by a red-faced “angry” emoji.
The wallet was later made available by Huawei and Apple.
A Huawei spokesman said the company’s platform showed fewer than 1,000 installations by late Tuesday afternoon.
“Like all innovations, El Salvador’s Bitcoin process has a learning curve,” Bukele said in a tweet. “Not everything will be achieved in a day, or a month.”
In just two years in office, Bukele has taken control of almost every lever of power. But while he has promised to clean up corruption, the US has recently put some of its close allies on a corruption blacklist.
Last week, top judges appointed by Bukele’s lawmakers decided he could serve a second term, breaking a constitutional rule that prohibited consecutive terms.
Analysts fear that the adoption of Bitcoin, whose transaction records are distributed over the Internet, outside the reach of national jurisdictions, could encourage money laundering.
After the Bitcoin law passed, ratings agency Moody’s downgraded El Salvador’s credit quality, while its dollar-denominated bonds also came under pressure.
The World Bank reiterated on Tuesday that it could not help El Salvador adopt Bitcoin “due to environmental and transparency deficiencies,” a bank spokesman said.
© Thomson Reuters 2021