El Salvador's Bitcoin Experiment

A Failed Venture or a Learning Opportunity?

In 2021, El Salvador made history as the first nation to adopt Bitcoin as legal tender, a bold move spearheaded by President Nayib Bukele. Promising financial inclusion, cheaper remittances, and economic growth, the initiative captured global attention. Four years later, with Bitcoin’s legal tender status significantly scaled back, opinions are divided on whether this experiment was a failure or a stepping stone for future innovation. This article examines the history of El Salvador’s Bitcoin journey, assesses its outcomes, and explores the lessons it offers.

History of the Bitcoin Experiment

El Salvador’s adoption of Bitcoin as legal tender began with the passage of the Bitcoin Law on June 9, 2021, following Bukele’s announcement at the Bitcoin Conference 2021 in Miami. The law, approved by a 62-84 vote in the Legislative Assembly, mandated that businesses accept Bitcoin and exempted Bitcoin transactions from capital gains tax. The government launched the Chivo wallet, offering a $30 Bitcoin bonus to encourage adoption, and invested heavily in infrastructure, including Bitcoin ATMs and a mining facility powered by geothermal energy. Bukele’s vision included ambitious projects like Bitcoin City, a tax-free hub powered by volcanic energy, and “Volcano Bonds” to fund it.

The initiative aimed to address longstanding economic challenges. El Salvador, dollarized since 2001, lacked control over monetary policy, and remittances, 23% of GDP in 2020, incurred high fees through traditional channels like Western Union. Bitcoin, with its promise of low-cost transactions via the Lightning Network, was pitched as a solution to make remittances more efficient and banking accessible to the unbanked. By 2022, more Salvadorans reportedly had Bitcoin Lightning wallets than bank accounts, particularly in areas like El Zonte, dubbed “Bitcoin Beach”, where a circular Bitcoin economy had taken root following a 2019 donation.

However, implementation faced hurdles. The Chivo wallet suffered technical issues, including payment processing failures and identity theft, leading to low user retention after the initial $30 bonus was spent. Public understanding of Bitcoin was limited, with a 2021 Central American University poll showing 90% of Salvadorans lacked clear knowledge of the cryptocurrency. Protests erupted over transparency concerns and the use of public funds, estimated at over $1 billion, for Bitcoin-related projects. Internationally, the International Monetary Fund (IMF) and financial experts criticized Bitcoin’s volatility and environmental impact, with Moody’s downgrading El Salvador’s credit rating in 2021.

By 2023, Bitcoin’s usage had declined sharply. Surveys from the Instituto Universitario de Opinión Pública (Iudop) showed Bitcoin transaction usage dropping from 25.7% in 2021 to 8.1% in 2024. Remittances via Bitcoin remained minimal, at 1.3% of total remittances in 2023, compared to higher rates in countries like Mexico. The promised Bitcoin City and Volcano Bonds never materialized, with the latter postponed due to global economic conditions. The government’s Bitcoin mining facility in Berlín, Usulután, faced operational issues, including power outages and flooding, and was reportedly shut down by late 2022.

In December 2024, under pressure from the IMF for a $1.4 billion loan, El Salvador reformed the Bitcoin Law, removing mandatory acceptance by merchants, prohibiting tax payments in Bitcoin, and scaling back government involvement in the Chivo wallet. While Bitcoin remains “legal tender” in name, its practical role has been reduced to voluntary private-sector use. As of March 2024, El Salvador’s Bitcoin reserves stood at 6,102 coins, valued at approximately $500 million, with a 50% profit due to Bitcoin’s price surge past $100,000.

Has the Experiment Failed?

The question of whether El Salvador’s Bitcoin experiment failed depends on the criteria for success. Critics, including The Economist (March 8, 2025) and The Tico Times (February 2, 2025), argue it was a failure. They point to low adoption rates, with 92% of Salvadorans not using Bitcoin in 2024, and the high costs, over $1 billion spent on infrastructure, ATMs, and Bitcoin purchases, that strained public finances. The Reddit post from r/CryptoCurrency (September 7, 2023) highlights unfulfilled promises, such as commission-free remittances and Bitcoin City, and alleges mismanagement, with funds allocated to projects like Chivo Pets misrepresented as Bitcoin-funded. The IMF’s conditions for the 2024 loan, which forced El Salvador to curtail Bitcoin’s role, underscore the experiment’s economic risks, including a $45 million loss on Bitcoin investments by September 2023.

However, others argue the experiment was not a complete failure. Americas Quarterly (March 2025) suggests it left valuable lessons, emphasizing the need for state capacity, robust regulations, and public trust for financial innovation. El Salvador’s Bitcoin reserves turned a $3.7 million profit by December 2023, and by March 2024, they were up 50%, suggesting a potential long-term financial upside. The initiative also boosted El Salvador’s global profile, attracting crypto tourists and conferences like PLANB Forum 2025. Programs like Bitcoin education in schools and regulatory sandboxes signal ongoing commitment to crypto innovation, even if not as legal tender.

The experiment’s shortcomings stem from practical and structural issues. Bitcoin’s volatility deterred its use as a daily currency, as noted by Reddit user “niceboobty”, who called it “not healthy for any state to rely on an asset prone to big movement.” Limited internet access, El Salvador ranks lowest in the 2023 Broadband Development Index, hindered adoption, particularly for the unbanked. The top-down mandate alienated a population accustomed to the U.S. dollar, with 91% preferring it over Bitcoin in 2021. Transparency issues, such as classified information about the mining facility, fueled distrust, as did Bukele’s exaggerated claims, like Bitcoin reaching $31 million by 2022.

Yet, the experiment demonstrated Bitcoin’s potential in specific contexts. In El Zonte, businesses reported a 30% increase in revenue from crypto tourists, and some Salvadoran-Americans, like Reddit user “geniric”, found the Strike app and Chivo wallet useful for remittances via the Lightning Network. These successes suggest that with better infrastructure and education, Bitcoin could play a niche role in financial inclusion.

Conclusion

El Salvador’s Bitcoin experiment did not achieve its lofty goals of transforming the economy or revolutionizing remittances. The low adoption rates, technical failures, and economic costs, compounded by the IMF’s intervention, support the view that it failed as a national currency experiment. However, labeling it a complete failure overlooks its contributions to global crypto discourse and the lessons it offers for future innovation. As Americas Quarterly notes, the trial exposed the need for robust infrastructure, clear regulations, and societal trust to integrate cryptocurrencies effectively. El Salvador’s ongoing Bitcoin reserves and educational initiatives suggest the story is not over. While the experiment stumbled, it may yet pave the way for more sustainable crypto adoption in the future.