El Salvador’s bitcoin experiment is already going wrong — and what else could happen

President Nayib Bukele had a utopian plan to transform his country's economy in 90 days, with any number of technical, macroeconomic and marketing challenges. It didn't go well? Go find your shocked-face emoji.

Anti-bitcoin protest in El Salvador

An anti-bitcoin protest in El Salvador took to the street as the country's law making the cryptocurrency legal tender took effect Tuesday.

Photo: Roque Alvarenga/Aphotographia/Getty Images

El Salvador's brave new bitcoin world fell flat.

The country's move to make bitcoin legal tender alongside the U.S. dollar took effect Tuesday, but was met with a crash in bitcoin prices and headaches with its new digital wallet as businesses and consumers grappled with difficulty in actually using the country's new currency.

Steep drops in bitcoin's price Tuesday and Wednesday highlighted the cryptocurrency's volatility. Protests also erupted from citizens who opposed the move to bitcoin.

El Salvador's digital wallet, Chivo, designed to be the central financial app for the entire country, was not available on Apple, Google or Huawei's app stores at launch Tuesday. It eventually showed up for download, but struggled with capacity problems, with the Chivo team taking it offline to move to higher-capacity servers at one point, according to crypto news site the Block.

President Nayib Bukele tried to put a good face on the launch, saying he bought the dip by purchasing bitcoin for the government's treasury at lower prices. He retweeted videos of people paying with bitcoin at businesses such as Starbucks, Pizza Hut and McDonald's. It's unclear how many small businesses that lacked the technological resources of a multinational corporation were accepting bitcoin.

There are some potential upsides of the country's move to bitcoin, such as lower costs for remittances, which are estimated to be one-quarter of the country's GDP. But there's a wide field of technical and financial landmines El Salvador still has to navigate.

Tech bugs

The plan was passed through the country's legislature in a matter of hours and implemented in about 90 days. And since El Salvador is the first country to make bitcoin legal tender, there's no playbook for how to do this. It showed in the rollout.

  • The country has outsourced its bitcoin plan to at least five private companies, with others like OpenNode, which McDonald's is reportedly using for bitcoin payments, getting in on the action.
  • With so many players involved, there doesn't seem to be a central organization offering technical support or education. What about individuals who don't have a mobile phone, or can't access a bitcoin ATM, which seems to be the main plan to access physical cash? What if businesses need something more sophisticated than a consumer-oriented wallet app to receive payments? There were some Chivo kiosks set up at plazas across the country, but they weren't very active, the Wall Street Journal reported. At times, Bukele himself offered technical support on Twitter.

Volatility and financial stability

The crypto world has a solution for bitcoin's volatile price: stablecoins, or crypto tokens whose value is designed to stay linked to fiat currency to make them more attractive as a means of payment. El Salvador has vague plans to introduce its own stablecoin, a digital version of the colon, its pre-dollarization currency. But that's just an idea at this point, and bitcoin, with its gyrating price, is what the country has for now.

  • If the price of bitcoin falls, businesses will have to hike their prices. If it rises, then consumers lose buying power.
  • El Salvador's government seems to recognize the problem: It's still paying public workers' salaries in dollars.
  • The IMF, with which El Salvador is negotiating a debt package, believes the bitcoin plan will cause "macroeconomic instability." It could hurt financial trust in the system, given crypto's connections with illegal activity, the multinational agency said.
  • There's also the potential use of the system for money laundering or other criminal activity, given how quickly the system was set up. Protesters pointed this out, saying bitcoin would attract money laundering.
  • The views of international lenders matter a lot, because the country is in debt and relies on international loans. Moody's downgraded the country's debt because of the bitcoin moves. The World Bank said it would not help with the bitcoin plan. If the country moves full steam ahead, there is no guarantee that the IMF or others will bail out the country's financial system if it doesn't work.

El Salvador's internal politics

Bukele, who's been called an "authoritarian hipster," is staking his reputation on the bitcoin plan. If he goes, will the bitcoin law stick around?

  • Critics have argued that Bukele's bitcoin moves are just part of his consolidation of power. A ruling last week by the Supreme Court — whose makeup was changed by the country's legislature this spring to make it more friendly to the president — recently allowed Bukele's reelection.
  • But the move to a crypto economy could end up making the country less stable — and Bukele's position less secure.

There's an argument that these are all just technological teething pains, a beta test conducted in public. And the dip in bitcoin could just be a "typical" sell-on-the-news reaction, according to Ulrik K. Lykke, executive director at crypto hedge fund ARK36. But it's clear that remaking an economy in real time around cryptocurrency is easier said than done.


Judge Zia Faruqui is trying to teach you crypto, one ‘SNL’ reference at a time

His decisions on major cryptocurrency cases have quoted "The Big Lebowski," "SNL," and "Dr. Strangelove." That’s because he wants you — yes, you — to read them.

The ways Zia Faruqui (right) has weighed on cases that have come before him can give lawyers clues as to what legal frameworks will pass muster.

Photo: Carolyn Van Houten/The Washington Post via Getty Images

“Cryptocurrency and related software analytics tools are ‘The wave of the future, Dude. One hundred percent electronic.’”

That’s not a quote from "The Big Lebowski" — at least, not directly. It’s a quote from a Washington, D.C., district court memorandum opinion on the role cryptocurrency analytics tools can play in government investigations. The author is Magistrate Judge Zia Faruqui.

Keep ReadingShow less
Veronica Irwin

Veronica Irwin (@vronirwin) is a San Francisco-based reporter at Protocol covering fintech. Previously she was at the San Francisco Examiner, covering tech from a hyper-local angle. Before that, her byline was featured in SF Weekly, The Nation, Techworker, Ms. Magazine and The Frisc.

The financial technology transformation is driving competition, creating consumer choice, and shaping the future of finance. Hear from seven fintech leaders who are reshaping the future of finance, and join the inaugural Financial Technology Association Fintech Summit to learn more.

Keep ReadingShow less
The Financial Technology Association (FTA) represents industry leaders shaping the future of finance. We champion the power of technology-centered financial services and advocate for the modernization of financial regulation to support inclusion and responsible innovation.

AWS CEO: The cloud isn’t just about technology

As AWS preps for its annual re:Invent conference, Adam Selipsky talks product strategy, support for hybrid environments, and the value of the cloud in uncertain economic times.

Photo: Noah Berger/Getty Images for Amazon Web Services

AWS is gearing up for re:Invent, its annual cloud computing conference where announcements this year are expected to focus on its end-to-end data strategy and delivering new industry-specific services.

It will be the second re:Invent with CEO Adam Selipsky as leader of the industry’s largest cloud provider after his return last year to AWS from data visualization company Tableau Software.

Keep ReadingShow less
Donna Goodison

Donna Goodison (@dgoodison) is Protocol's senior reporter focusing on enterprise infrastructure technology, from the 'Big 3' cloud computing providers to data centers. She previously covered the public cloud at CRN after 15 years as a business reporter for the Boston Herald. Based in Massachusetts, she also has worked as a Boston Globe freelancer, business reporter at the Boston Business Journal and real estate reporter at Banker & Tradesman after toiling at weekly newspapers.

Image: Protocol

We launched Protocol in February 2020 to cover the evolving power center of tech. It is with deep sadness that just under three years later, we are winding down the publication.

As of today, we will not publish any more stories. All of our newsletters, apart from our flagship, Source Code, will no longer be sent. Source Code will be published and sent for the next few weeks, but it will also close down in December.

Keep ReadingShow less
Bennett Richardson

Bennett Richardson ( @bennettrich) is the president of Protocol. Prior to joining Protocol in 2019, Bennett was executive director of global strategic partnerships at POLITICO, where he led strategic growth efforts including POLITICO's European expansion in Brussels and POLITICO's creative agency POLITICO Focus during his six years with the company. Prior to POLITICO, Bennett was co-founder and CMO of Hinge, the mobile dating company recently acquired by Match Group. Bennett began his career in digital and social brand marketing working with major brands across tech, energy, and health care at leading marketing and communications agencies including Edelman and GMMB. Bennett is originally from Portland, Maine, and received his bachelor's degree from Colgate University.


Why large enterprises struggle to find suitable platforms for MLops

As companies expand their use of AI beyond running just a few machine learning models, and as larger enterprises go from deploying hundreds of models to thousands and even millions of models, ML practitioners say that they have yet to find what they need from prepackaged MLops systems.

As companies expand their use of AI beyond running just a few machine learning models, ML practitioners say that they have yet to find what they need from prepackaged MLops systems.

Photo: artpartner-images via Getty Images

On any given day, Lily AI runs hundreds of machine learning models using computer vision and natural language processing that are customized for its retail and ecommerce clients to make website product recommendations, forecast demand, and plan merchandising. But this spring when the company was in the market for a machine learning operations platform to manage its expanding model roster, it wasn’t easy to find a suitable off-the-shelf system that could handle such a large number of models in deployment while also meeting other criteria.

Some MLops platforms are not well-suited for maintaining even more than 10 machine learning models when it comes to keeping track of data, navigating their user interfaces, or reporting capabilities, Matthew Nokleby, machine learning manager for Lily AI’s product intelligence team, told Protocol earlier this year. “The duct tape starts to show,” he said.

Keep ReadingShow less
Kate Kaye

Kate Kaye is an award-winning multimedia reporter digging deep and telling print, digital and audio stories. She covers AI and data for Protocol. Her reporting on AI and tech ethics issues has been published in OneZero, Fast Company, MIT Technology Review, CityLab, Ad Age and Digiday and heard on NPR. Kate is the creator of and is the author of "Campaign '08: A Turning Point for Digital Media," a book about how the 2008 presidential campaigns used digital media and data.

Latest Stories