El Salvador faced a rocky transition in its adoption of Bitcoin as legal tender on Tuesday. The governmentâ€™s app for facilitating transactions â€” its â€œdigital walletâ€ â€” went offline temporarily, protesters took to the streets of the capital to denounce the move, and the price of Bitcoin dropped sharply, demonstrating the volatility of the cryptocurrency market.
The country is the first to use Bitcoin as an official currency, encouraging businesses and citizens to use it in everyday transactions, and the authorities struggled to smooth out glitches in the new system.
President Nayib Bukele wrote on Twitter on Tuesday morning that the digital wallet, which is called Chivo after a slang word for â€œcool,â€ would be available to Salvadorans in the United States and almost anywhere in the world. But even as large companies such as McDonaldâ€™s began accepting Bitcoin payments in El Salvador, for a time the wallet was not available to anyone, and the country slowed its rollout.
Mr. Bukele also announced on Twitter that servers were temporarily being taken offline as Chivo added capacity, and he acknowledged issues with downloads. â€œWe prefer to correct it before reconnecting it,â€ he said.
When the law to adopt Bitcoin was passed in June, experts warned that it could bring instability and unnecessary risk to El Salvadorâ€™s fragile economy.
International financial regulators have also voiced legal concerns. Apart from the economic risks of Bitcoinâ€™s volatility, the World Bank and the International Monetary Fund, which is considering a financing deal with El Salvador, have said making Bitcoin an official currency could leave a country open to money laundering and other illicit financial activity. Bitcoin was initially designed to thwart total governmental control over money.
Many Salvadorans also appear wary of Bitcoinâ€™s new status as an official currency alongside the U.S. dollar, which the country has relied on since 2001. On Tuesday, around 1,200 people protested in San Salvador, the capital, to oppose the adoption of cryptocurrency as well as judicial changes pushed through by Mr. Bukeleâ€™s party, the latest in a series of minor demonstrations that have erupted since the Bitcoin law was announced.
â€œNo to Bitcoin, no to Bitcoin,â€ the crowd, which included judges and magistrates, chanted, holding signs with the Bitcoin logo crossed out.
â€œThe dollar is a currency I can hold, but this â€” what kind of security is it going to give me?â€ asked Marina PÃ©rez, a homemaker who was marching in the protest. â€œIâ€™m against Bitcoin, and Iâ€™m against all the governmentâ€™s measures.â€
A majority of Salvadorans polled last month by La Prensa GrÃ¡fica, a newspaper, said they were against El Salvadorâ€™s adoption of Bitcoin, and nearly three-quarters said they would not accept the digital currency as payment. Only about a third of Salvadorans use the internet, and almost a quarter live below the poverty line.
â€œThe truth is that here as the poor people that we are, we donâ€™t understand that,â€ JosÃ© Lopez, 81, a shoe shiner in San Salvador, said before the national Bitcoin adoption. â€œIâ€™m worried.â€
Cryptocurrency advocates â€” including El Salvadorâ€™s president â€” argue that adopting Bitcoin will foster financial inclusion. The majority of Salvadorans donâ€™t have access to banking services, but most have cellphones that could, at least theoretically, allow them to join the blockchainâ€™s alternate financial system. Mr. Bukele has said the move will also make receiving remittances from abroad faster and cheaper and will attract foreign investment.
Crypto fans abroad have cheered on El Salvadorâ€™s move, even as some worry that practical problems such as the technical glitches on Tuesday could slow adoption of Bitcoin elsewhere. Michael Saylor, the chief executive of the software intelligence firm MicroStrategy, which holds billions of dollarsâ€™ worth of Bitcoin, encouraged enthusiasts on Monday to buy $30 of the cryptocurrency â€œin solidarityâ€ with Salvadorans, who have been promised that amount for downloading the national digital wallet.
To some Salvadorans, the enthusiasm feels reminiscent of the financial colonialism that the global crypto movement claims to undermine.
Spurred in part by Mr. Bukeleâ€™s announcement that El Salvador had bought 200 Bitcoins and quickly bought 200 more, the price of Bitcoin broke $52,000 on Monday before falling to around $45,000 on Tuesday. Mr. Bukele then announced that his government had bought an additional 150 Bitcoins, bringing the nationâ€™s total to 550.
â€œBuying the dip,â€ the president said, using the lingo of crypto holders who pride themselves on being confident enough in their bets to buy falling assets. â€œWe saved a million in printed paper.â€
Brock Pierce, an American cryptocurrency entrepreneur who is chairman of the nonprofit Bitcoin Foundation, dismissed the technical challenges.
â€œNo one had any expectation that this would be completely smooth,â€ Mr. Pierce said, given that there were only 90 days between the Bitcoin lawâ€™s adoption and Tuesday. He said he was speaking from a car in El Salvador that was â€œfull of entrepreneursâ€ like him.
Itâ€™s rare to see a government act with the spirit of â€œan entrepreneurial start-up,â€ Mr. Pierce said, noting that the move by Mr. Bukele was drawing investment attention from businesspeople from around the world and could be good for Salvadorans without banking access. He called it a â€œhistoricâ€ moment that would be remembered for many years to come.
Nelson Renteria contributed reporting.