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El Salvador’s world-first adoption of bitcoin endures bumpy first day

El Salvador's world-first adoption of bitcoin endures bumpy first day
Written by publishing team

SAN SALVADOR (Reuters) – El Salvador’s historic adoption of bitcoin as a legal currency on Tuesday faced problems with growth, as angry protest erupted by citizens who do not trust them, technological glitches and the cryptocurrency’s decline.

The daring experiment got off to a rough start when Salvadoran President Neb Bukele complained shortly after midnight that the government-backed bitcoin app was not available on many internet platforms including Apple and Huawei.

Bukele used his Twitter account to pressure online stores to store the app, or digital wallet, known as Chivo, and later Huawei began making it available. But when the app proved unable to handle user registrations, the government shut it down in order to connect to more servers and increase capacity.

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However, as the app started appearing on more platforms, Bukele was retweeting videos posted on social media in the afternoon with people making bitcoin payments at El Salvador retailers including McDonald’s Corp (MCD.N) and Starbucks Corp. (SBUX.O).

“El Salvador is taking a huge step forward today,” said Carlos Garcia, who went to a booth in a San Salvador mall to offer advice on how the new currency should work.

The Starbucks unit in El Salvador said it accepts bitcoin to buy at or go to its restaurants or facilities.

Bukele promised $30 worth of bitcoin to each user and paid for it, saying it would help Salvadorans save $400 million annually in remittance commissions, while providing access to financial services for people without a bank account.

“We must break the patterns of the past,” Bukele wrote on Twitter. El Salvador has the right to advance into the first world.

Bukele, 40, is one of the most popular presidents in the Americas, but is accused of undermining democracy. Polls have shown that Salvadorans are skeptical about the use of bitcoin, fearful of its volatility and unsure of how it will work.

More than 1,000 people staged a protest in San Salvador on Tuesday against the adoption of bitcoin, burning a tire and setting off fireworks in front of the Supreme Court.

With the currency’s price fluctuating, the government bought an additional 150 bitcoins on Tuesday, worth about $7 million.

However, the poorest may struggle to access the technology needed to make bitcoins work in El Salvador, where nearly half of the population has no access to the internet and many have only a spotty connection.

“I will continue to struggle with or without bitcoin,” said sweets seller Jose Herrera, who said he has difficulty accessing a mobile phone.

Some say the adoption of bitcoin may fuel illicit transactions and financial instability. It has already muddied expectations of the more than $1 billion in funding El Salvador is seeking from the International Monetary Fund.

The Bitcoin logo appears outside at the Sevilla Barber Shop as Bitcoin is accepted as payment in Santa Tecla, El Salvador on September 6, 2021. REUTERS / Jose Cabezas

American tensions

Ahead of the launch, El Salvador bought 400 bitcoins worth about $20 million, Bukele said, helping push their price above $52,000 for the first time since May. Hours later, bitcoin weakened and was last trading down 0.51% at $4,6561.74.

Ethereum, another cryptocurrency, fell 0.32% to $3404.05, while cryptocurrency exchange Coinbase Global (COIN.O) slid 4.18% after reporting delays in some transactions on its platform.

The change means that businesses must accept payments in bitcoin along with the US dollar, which has been El Salvador’s official currency since 2001 and will remain legal tender.

It remains unclear whether companies will be penalized if they do not accept bitcoin.

In the run-up to the launch, the government installed ATMs that allow bitcoins to be converted into dollars and commission-free withdrawals from the Chivo digital wallet.

Bukele blamed Apple Inc (AAPL.O), Alphabet Inc (GOOGL.O) Google and Huawei’s app download platforms for the initial Chivo delay.

“Release it! AppleGoogle & Huawei!” Bukele wrote in a tweet accompanied by a red-faced emoji.

The wallet was later available from Huawei and Apple.

A Huawei spokesperson said the company’s platform showed fewer than 1,000 installations by late Tuesday afternoon.

“Like all innovations, the Bitcoin operation in El Salvador has a learning curve,” Bukele said in a tweet. “Not everything will come true in a day or a month.”

Within nearly two years in office, Bukele had assumed control of nearly all of the instruments of power. But despite his promise to remove corruption, the United States recently put some of his close allies on a corruption blacklist.

Last week, the top justices appointed by Bukele’s deputies ruled he could serve a second term, far from the constitutional rule banning consecutive terms.

Analysts fear that the adoption of bitcoin, whose transaction records are distributed online, beyond the reach of national jurisdictions, could encourage money laundering.

After the bitcoin law was approved, rating agency Moody’s downgraded El Salvador’s creditworthiness, while its dollar-denominated bonds came under pressure.

A bank spokesperson said the World Bank confirmed on Tuesday that it could not help El Salvador adopt bitcoin “given the shortcomings in the environment and transparency.”

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Additional reporting by Nelson Renteria in San Salvador and Anthony Esposito in Mexico City; Additional reporting by Wilfredo Pineda in El Zonte, El Salvador, and Frank Jack Daniel and Cassandra Garrison; Editing by Daniel Flynn, Rosalba O’Brien, Matthew Lewis and Chris Reese

Our Standards: Thomson Reuters Trust Principles.

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