El Salvador citizens largely shun bitcoin, despite government adoption

In September, El Salvador recognized the cryptocurrency bitcoin as legal tender. The program, led by President Nayib Bukele, means that public institutions and businesses can recognize it as a legal method of payment.

Since then, the value of bitcoin has fallen by more than half. So how are the government’s efforts affecting Salvadorans today?

Jacob Silverman is a freelance journalist who has covered the crypto space. He traveled to El Salvador with his reporting partner, actor Ben McKenzie. Their gaming history was recently published in The Intercept.

Silverman said bitcoin’s falling value has hurt the government’s ability to repay its crushing debt. But in general, it hasn’t destroyed citizens’ daily finances because many avoid bitcoin altogether. The following is an edited transcript of Silverman’s conversation with Marketplace’s Andy Uhler.

Jacob Silverman: For the people, it has certainly been a problem. I mean, a lot of people lost money. We spoke to a number of people who had their identities stolen. But it simply caused a lot of people [to] abandon bitcoin and not be interested in it. Some people don’t have internet access, some people don’t have consistent electricity. Some people just don’t want to be involved or they had a bad first experience. So in that way, that’s kind of how it’s been a failure, I would say, for the average Salvadoran. The proof is actually also in money transfers. About a quarter of El Salvador’s economy, their GDP, is driven by remittances because they have so many people living abroad. And only 2% of transfers are sent through bitcoin at the moment, which really shows that the established methods of transfers, which are often things like Western Union or MoneyGram, seem to be sufficient for most people.

Andy Uhler: So if I’m in El Salvador, if I’m trying to spend money in El Salvador, how do I do that if I decided I’m not going to interact with bitcoin?

Silverman: In fact, El Salvador’s other official currency is the US dollar. So most of the economy there is done in cash and about 70% of people don’t have a bank account either. So, basically, it’s a US dollar-based economy there. That is actually what is preferred. We were even in places like the airport [the capital city] San Salvador, a nice, technologically up-to-date airport. We asked to use bitcoin to buy some souvenirs. They said they would rather not and asked for dollars.

Uhler: You have a great line in this piece, where you call the bitcoin project “a tangled mess of public and private interests.” Tell me about the relationship between the Bukele administration and some of the private companies that may not even be in El Salvador working to promote crypto in the country. It’s actively happening, isn’t it?

Silverman: Very much. And some of this happens in the open. I mean, for example, a lot of this is run by a company called iFinex Inc., which is the parent company of BitFinex, which is a major crypto exchange, and Tether, which is a very controversial “stablecoin,” because some people have questioned their business practices, including the US government. So we know that they are being invited to draft the securities laws to be adopted by the Salvadoran government. They’ve been heavily involved in giving away money and giving away bitcoin to people and sort of spreading the bitcoin gospel. It really isn’t just the Salvadoran government that chooses to give bitcoin to its people or provide access to it. There are many interested players and many foreign players. And as we don’t quite know what everyone is up to.

Uhler: Is there anything we can learn and add to the conversation when it comes to this kind of bitcoin experiment?

Silverman: I think so. I think, firstly, it doesn’t work very well as a currency because it’s not very liquid, its value is very volatile. And despite the problem of inflation, which is a legitimate problem, people need their currency to be something reliable in the form of 1 bitcoin will be worth the same amount from one day to the next. And I also think that when you see it implemented by a government that may not be very credible, or perhaps any government that may be beholden to private interests, it does not become the democratic, liberating economic tool that it has been called. People are already being evicted from Bitcoin Beach, the area in El Salvador highlighted for bitcoin. So what you see is when bitcoin is actually implemented in a country like El Salvador, it’s actually a tool for private interests and for elites to enrich themselves. It’s not really the economic lifeline that its main boosters would claim it to be.

Silverman, a freelance journalist, is writing a book with actor Ben McKenzie about cryptocurrency and scams. Their story for The Intercept includes more context about how this experiment fits into Salvadoran life, the rampant gang violence there and economic pressures like rising foreign debt.

Rest of World, which covers global tech stories, has an article sharing details about the Salvadoran bitcoin wallet app, Chivo. It turns out that the app suffered from many technical and security flaws. As many as 61% of consumers left the app after collecting an initial government ingenuity.

If you want to find out a little more about cryptocurrency mining in the US, we have a couple of stories for you.

One from The New York Times about recent congressional hearings. And I’d be remiss if I didn’t mention a story I produced a few months back about a giant mining facility in Rockdale, Texas.

Another article, from Quartz, talks about whether crypto mining is stifling our transition to cleaner, renewable energy – a conversation near and dear to my heart.