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According to multiple reports, the Salvadoran government-issued bitcoin wallet, Chivo, has frozen wallets and asked owners to verify the source of funds. The founder of El Zonte’s Bitcoin Beach stated that the government’s bitcoin wallet software is flagging and freezing wallets that receive transactions from Wasabi, a non-custodial bitcoin wallet that uses Coinjoin technology to hide on-chain transaction monitoring.
Bitcoin (BTC) is now legal tender in El Salvador, and the government provides infrastructure services such as bitcoin ATMs and a mobile bitcoin wallet called Chivo. The Chivo wallet has faced criticism in the past, with the International Monetary Fund (IMF) raising concerns about the wallet’s regulatory oversight. Recently, the founder of El Zontes Bitcoin Beach and other members of the community reported that Chivo wallets were flagged and frozen.
“This week a local carpenter we know had his wallet frozen for $1000 transactions,” Bitcoin Beach Twitter account tired on 3 April. “They asked him to prove the origin of the funds. The friction will push people back to the traditional banking system. Their banking transactions receive less scrutiny than [bitcoin] transactions. Small normal legitimate transactions that they need to spend hours trying to justify.” In another chirpingBitcoin Beach reported that Chivo software is flagging and freezing wallets that receive transactions from Wasabi, apparently “bowing to US pressure to prevent privacy.”
Furthermore, the founder of Bitcoin Beach, Mike Peterson, addressed the issue during a live broadcast. “We as bitcoiners have to keep putting pressure on Chivo, on the government, on these people because they’re getting pressure from this other direction,” Peterson said. According to reports, Chivo wallet users who have their funds flagged and frozen must provide documentation of the origin of the money. However, not everyone subscribes to the theory that Chivo is blocking Coinjoin transactions originating from Wasabi.
“I have sent postmix coins to Chivo addresses with no problems,” explained The Escape to El Salvador Twitter account. “I’m not saying that the person Mike paid didn’t have his account frozen, but there’s simply no evidence that it was because of that. Believe it or not, there are a lot of people who say things on the internet without verifying,” the person added. Wasabi is a bitcoin wallet that allows users to mix their unused transaction outputs (UTXOs) with others using a technique called Coinjoin.In addition, blockchain analytics firms such as Chainalysis have claimed that Wasabi’s mixed transaction method can be de-anonymized or de-mixed.
Following Bitcoin Beach’s tweets on the matter, a Twitter account named Peter Pan noted“El Salvador is not winning…” However, the Bitcoin Beach Twitter account disagreed with the claim, insists“El Salvador definitely wins – just bumps in the road along the way. Still the easiest place to live on a bitcoin standard by a wide margin.”
What do you think about the situation with Chivo freezing wallets and asking for proof of the origin of the funds? Do you think this is a necessary step for regulatory oversight, or do you think it goes against the spirit and core principles of bitcoin privacy? Let us know in the comments section below.
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