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. difficult and cumbersome 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 banknotes) and had widespread distrust of banks and a strong memory of rushing dollarization from 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. difficult and cumbersome 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 banknotes) and had widespread distrust of banks and a strong memory of rushing dollarization from 2001.

But echoing the Silicon Valley model – “Move fast and break things” – the government has tried to sell speed and everything as an advantage. A government figure noted: “We can do it slowly, or we can just put it on people and people will learn. If they have to, they will learn and they will learn quickly.

Salvadoran government figures have repeatedly claimed that accepting bitcoin will be entirely optional, and a number of other times that it would be mandatory. Section 7 of the Bitcoin Act, which makes acceptance of bitcoin mandatory, remained in place.

In a July survey, 49% of those surveyed 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 showed that a reliable Internet was available for 45 percent of the population, and less than 10 percent in rural areas.

Bukele announced an official bitcoin wallet, Chivo — Salvadoran 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 displayed numbers. in the Chivo app.

Bukele announced the name “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 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 said to be the main bitcoin advocates in the president’s circle. The president’s chief of staff, Carolina Recinos, is on the Engel list of corrupt officials of the US State Department, and is a director of Chivo SA de CV.

Bukele’s team recruited people they saw as politically trustworthy, but not necessarily people who could do the job. The Chivo project is supported by a Venezuelan team, which is part of a “shadow cabinetFrom unofficial advisers known to work with the Venezuelan opposition. Shadow cabinet chief Sara Hanna and cryptocurrency promoter Lorenzo Rey designed the Chivo network. Rey’s payment experience promoted an alternative cryptocurrency, Dash, as a payment and remittance channel in Venezuela, but many Venezuelan merchants listed as accepting Dash couldn’t even get it. 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 Gómez, has been arrested without charge on September 1 and detained for five hours before the public outcry gave him Release– even though he still don’t 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 in the morning, 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 accident on the International Monetary Fund, although this is more likely due to information leaks about the Coinbase crypto exchange receive a warning of the United States Securities and Exchange Commission. Bukele had bought $ 20.6 million in bitcoin for the national treasure the day before.

After demonstrations on September 6, over 1,000 people marched through the Legislative Assembly on September 7, jump barriers placed early that morning to prevent them from entering. A group of protesters burning tires. Opposition politicians attended today’s session at “No Bitcoin” Shirts.

The protests were not against bitcoin itself. People protested against the forced acceptance, total lack of government transparency and Chivo’s dysfunctional payment system – “people are against the way things are done in the name of bitcoin”, the businessman local Patrick Murray. noted.

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; he must therefore borrow or use the Bitcoin law 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, ending Sept. 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.

Chivo’s 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 Chivo’s identity verification feature didn’t even check photos, you could only register with a DUI number and corresponding date of birth. Some users have discovered that their DUI number has already been used. Others have tested the system with publicly known DUIs. Residents who had not installed the app verification codes received by 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 would rather lose the sale”, a trader Recount 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 functioning well – a machine had a report three successful cash withdrawals in one day. Same bitcoin transfer in and out of Chivo had problems. Collected @chivowallet tweets aggrieved responses people.

Using Chivo is not mandatory – some install 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. About 15,000 people took to the streets to massive demonstrations, by far the the biggest of the presidency of Bukele, not only against bitcoin, but against that of Bukele the dismissal of inconvenient judges, who obtained a decision from the Supreme Court allowing him to run for president again and a bunch of constitutional changes.

A Chivo kiosk was ignite and spray-painted with anti-Bukele graffiti – but that seems to have been a very obvious false flag: the vandals wore T-shirts that had been distributed to them by a government owned vehicle previously used to distribute pandemic relief package.

Bukele is moving forward with Project Chivo – his plans need these funds, and he is still hoping for an influx of foreign bitcoins. 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, have not materialized because Chivo is not working. not good enough.

It is not known 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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