In September 2021, El Salvador became the first country to make bitcoin legal tender, requiring all businesses to accept the cryptocurrency. In an attempt to popularize and regularize its use, the government offered citizens financial incentives to download a special cryptocurrency app.
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Half of the households in the country downloaded the app when the bitcoin law went into effect. however, since early 2022, very few households have joined the pioneers. Among early downloaders, more than 60 percent have not made a transaction after spending the free bitcoin that comes with the account, and 20 percent have yet to spend the bonus. however, a small group of consumers, most of whom are banked, educated, young and male, are very active on the app. this group was not the intended target of the bitcoin launch.
Despite free bitcoin and discounted gas for those who download and use the cryptocurrency app, downloads have stagnated and usage in daily life is not widespread.
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what are crypto currencies in? bitcoin as legal tender in el salvador (working document nber 29968), fernando e. alvarez, david argente, and diana van patten report on a nationally representative face-to-face survey of 1,800 salvadoran households that explored the breadth of digital currency acceptance and the reasons more salvadorans are not taking advantage of the technology.
In theory, developing nations like El Salvador are ideal candidates for cryptocurrency adoption. more than half of its citizens rely exclusively on cash, rather than credit or debit cards. about 70 percent of households do not have a bank account and nearly 90 percent do not use mobile banking. a digital payment platform could be a way to make the economy more inclusive and accessible.
el salvador introduced the chivo wallet in september 2021 along with incentives for households to download and use it. These included $30 worth of free bitcoin with every download, which is nearly 1 percent of average annual per capita income, and deep discounts on gas paid for in bitcoin. residents did not need a bank account or credit card to carry out transactions, only a mobile phone with internet access, something that two-thirds of residents had.
Another added bonus was free transactions. Out of the blue, bitcoin transactions can involve large fees. Using a bitcoin ATM can incur fees of up to 20 percent of the transaction amount. But with Chivo, transactions, bitcoin-to-dollar conversions, and withdrawals at Chivo ATMs are free of charge.
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Nearly 78 percent of those who knew about the app tried to download it. the most common motivator was the $30 bonus, although respondents also noted contactless payment technology at a time when the covid-19 pandemic was in full swing and the potential for receiving remittances. among one in five salvadorans who knew chivo but did not download it, the main reason was the preference for using cash. others said they didn’t trust the system or bitcoin, didn’t have a phone with internet, or the technology was complicated.
Even among active users who reported using the app after spending the bonus, more than half have not withdrawn cash from a goat ATM. but the mean number of ATM withdrawals is 2.59, which suggests that a small group of users is very active in the system.
While all businesses are required by law to accept bitcoin, only 20% actually do. Roughly 5 percent of all sales have been paid for in bitcoin through the chivo wallet, and just as most chivo households prefer to keep their money in cash rather than bitcoin, 88 percent of businesses convert your bitcoin into dollars.
— laurent belsie
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