El Salvador’s Bitcoin Gamble Is Off to a Rocky Start
As El Salvador enters its bitcoin era, its sky will sparkle with the lights of a platoon of drones. “We are throwing an event,” says American cryptocurrency evangelist Brock Pierce. “They did a big one at Burning Man in the past. They did one during the Super Bowl. So we brought down the best drone crew in the world, and we’re going to be putting on quite a show in the sky.”
A former child actor, and current tech investor and notorious Burner, Pierce led a delegation of crypto entrepreneurs in June to the Central American country, following president Nayib Bukele’s announcement that El Salvador would adopt bitcoin as its legal tender, in addition to the US dollar, starting on September 7, 2021. Since then, Pierce has been in touch with government officials in El Salvador—“I just got off the phone with the president’s brother,” he says—and with businesspeople looking to establish a presence in the country to cater to its novel crypto needs. He is now back in El Salvador to attend the big day. “The rate at which they’ve been able to implement this is rather astounding,” he says. “Like all things, I’m assuming it’s going to be less than perfect at first. But perfection is the enemy of progress.”
The speed at which the Bukele government has brought about this experiment, kick-starting the country’s bitcoinization just 90 days after the parliament passed the law sanctioning the shift, is indeed eye-popping. To the point that one wonders whether the country, and its population, would have benefitted from a longer lead-up. Or, at least, from more transparency.
Crucial details regarding how the adoption of bitcoin will play out in practice are still unclear or have only been disclosed in recent days. A government regulation issued on August 27 established that Salvadoran banks will have to offer the exchange of bitcoin for dollars and vice versa—when carried out through a government-backed wallet—without charging commissions; the regulation also requires that all companies providing bitcoin-related services register with a government body, and adopt anti-money-laundering measures. (It is not clear what the penalties would be for failing to do so.)
“This was done a week and a half before September 7,” says Mario Aguiluz, chief sales officer of IBEX Mercado, a Guatemalan firm that sells bitcoin exchange and payment solutions, which also operates in El Salvador. “You really have to ask whether the government is ready. It’s a mixed bag.”
There is also a dearth of information about the government’s own bitcoin wallet, called Chivo. It’s known that it will work in concert with 200 Chivo ATM machines where users would be able to exchange their bitcoin for cash, free of commissions (a recent Economist story reports a 5 percent fee being charged when converting dollars into bitcoins, although the publication must have used a third-party wallet), and that each Chivo wallet will come complete with $30 worth of bitcoin as a government freebie. What we do not know is who exactly has developed the wallet or the ATM machines and what technology will underpin it.
According to Chris Hunter, cofounder of bitcoin firm Galoy, such plans are changing “almost hour-by-hour.” Hunter, whose bitcoin payment service in the Salvadoran coastal village of El Zonte reportedly inspired the nationwide project, says that the situation was still “very fluid” as of early September. As recently as last week, he was convinced that Chivo would not be able to use the lightning network, a system that dramatically speeds up bitcoin transactions, which would otherwise take several minutes to be confirmed. “Now, it seems pretty clear to me—if you asked me to make a wager—that it will be enabled as of Tuesday,” Hunter says. El Salvador’s government did not reply to a request for comment.