El Salvador's plan to make bitcoin legal tender in the country alongside the U.S. dollar relies on several private companies to make the system work.
The country's unprecedented effort to move the entire economy to bitcoin depends on five companies and one blockchain protocol — and more may be planned.
The country's bitcoin law, which passed in June, went into effect Tuesday. The use of bitcoin as legal tender isn't mandatory, President Nayib Bukele said in August, but his government is enthusiastically pushing it.
Bitso, a Latin American cryptocurrency exchange, is the "core service provider" for the digital wallet called Chivo ("cool") that will be used for the program, according to Reuters. Founded in 2014, Mexico City-based Bitso was valued at $2.2 billion in May and is backed by Coinbase, Ripple, Coatue, Tiger Global, QED Investors and others. In addition to its crypto exchange business, it also has a crypto remittance business — another area of interest for El Salvador, whose economy is heavily dependent on money sent home by citizens abroad.
Separately, BitGo, a Palo Alto-based crypto custody and security company, is reportedly providing security technology for the wallet.
People or businesses can use the Chivo wallet to send payments in bitcoin or dollars. El Salvador effectively abandoned its former currency, the colon, in 2001, opting to dollarize its economy.
With traditional banks not well situated to handle an economy built on bitcoin, individuals and businesses need a way to access their holdings. So Athena Bitcoin plans to install about 1,500 ATMs in El Salvador, which can be used to buy bitcoin or withdraw cash, according to the company's website. There are currently 200 such ATMs, the government has said. Withdrawals, deposits and other transactions would reportedly not be charged fees.
U.S.-based Silvergate Bank is working with Bitso on transactions that involve U.S. dollars, Bitso said. Silvergate, a federally chartered bank, provides banking services for crypto companies such as Coinbase, Circle and Kraken, according to its website. It is also the bank working on Diem, the cryptocurrency project initially backed by Facebook.
El Salvador plans to use Koibanx, a blockchain infrastructure company, to develop its blockchain infrastructure. The country plans to use the Algorand blockchain, the 24th largest cryptocurrency by market cap, which is designed to use proof of stake and have low transaction fees. Algorand was founded in 2017 by Silvio Micali, an MIT professor. Using Algorand will reportedly allow for the storage of official documents on the blockchain.
In addition, individuals and companies will have their own blockchain address which will enable all transactions between people or companies and government entities to be recorded on the Algorand blockchain, per Coindesk.
There have also been local reports that El Salvador plans to launch a native stablecoin — which could mark a digital comeback of the colon. Reports differ on the status of the project.
For now, the government is building its crypto reserves in the best-known digital currency. Bukele said on Twitter Monday that his government had bought 200 bitcoin and plans to buy more.