A bold gamble that shaped a nation’s fate: a summary of the three-year record.
- Background on El Salvador becoming the first country to adopt Bitcoin as legal tender
- Reasons behind the failure of the government-led digital wallet ‘Chivo’ and the public’s actual response
- International pressure, policy backtracking, and the lessons that remain today
The Complete Story of El Salvador’s Bitcoin Experiment
In 2021, the world focused on the bombshell announcement by young, charismatic President Nayib Bukele of El Salvador. He declared the country would become the first in the world to designate Bitcoin as legal tender. When I first heard this news, I doubted its feasibility. The decision promised a rosy future of financial inclusion, reduced remittance fees, and investment attraction, but it also marked the start of a massive gamble with the nation’s fate.
1. The Dream Begins: Why Did El Salvador Choose Bitcoin?
El Salvador’s radical choice stemmed from its unique economic situation.
A country without monetary sovereignty, under the shadow of the dollar
In 2001, to combat severe inflation, El Salvador abandoned its national currency, the colón, and adopted the US dollar as legal tender. This decision resolved the immediate crisis but created an “economic colony” status, unable to implement independent monetary policies like interest rate adjustments or liquidity supply. This lack of monetary control ironically led the country to consider Bitcoin as an unprecedented alternative.
The lifeblood of the economy: remittances
Another pillar of El Salvador’s economy is remittances from citizens living abroad, accounting for over 20% of GDP. However, high fees during the remittance process were a chronic problem. President Bukele claimed Bitcoin could be a ‘magic wand’ to solve this by enabling transfers without intermediaries.
The starting point: El Zonte’s ‘Bitcoin Beach’
This massive national experiment began in a small surfing town called El Zonte. The ‘Bitcoin Beach’ project, started in 2019 with anonymous donations, tested a circular economy where residents lived solely on Bitcoin. This small success inspired President Bukele.
However, forcibly applying a voluntary success model from a small community to the entire population of 6.5 million by law was a fundamental mistake. It foreshadowed how ignoring social and technical foundations in tech policy can lead to failure.
2. The Wall of Reality: Ghost Wallets and Lost Money
On September 7, 2021, the Bitcoin law took effect and the government launched the official digital wallet ‘Chivo’, but problems arose from the start.
$30 bait and the nightmare of identity theft
The government offered $30 worth of Bitcoin upon app download, but this caused terrible side effects. Many citizens experienced nightmares where their ID numbers (DUI) were stolen without their knowledge, accounts were opened fraudulently, and bonuses disappeared. This incident deepened the deep-rooted distrust in government systems.
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Ignored technology, empty wallets
The reality was grim. Most users cashed out the $30 bonus immediately into dollars and deleted the app. A 2024 survey showed only 8 out of 100 citizens had used Bitcoin for payments in the past year. With 70% of the population unbanked, digital finance was unfamiliar, and high internet costs plus low smartphone proficiency created a massive digital divide.
| Major Issues with Chivo Wallet | Details |
|---|---|
| Identity theft and fraud | Accounts opened without user consent and $30 bonuses stolen |
| Transaction failures and delays | Transfers and payments not processed or severely delayed |
| Disappearing funds | Wallet funds vanished without explanation |
| Account lockouts | Users locked out without clear reasons |
| Technical defects | Frequent server crashes and app failures |
| Poor customer support | Difficult to reach support and unresolved issues |
3. The President’s Gamble: Buying the Dip with Public Funds
While citizens shunned Bitcoin, President Bukele began purchasing Bitcoin directly with state funds. He broadcasted on X (Twitter) every time he bought more during price drops, calling it “Buying the dip”, appearing more like a ‘gambler’ than a national leader.
A dizzying rollercoaster between bust and boom
El Salvador’s Bitcoin portfolio experienced a wild ride. During the 2022 crypto winter, it suffered massive unrealized losses exceeding $61 million (about 85 billion KRW)—around 60% of the investment principal—sparking fears of national bankruptcy.
However, in 2024, Bitcoin’s price surged, and the government announced a peak profit of $443 million (about 620 billion KRW). Yet, this was only unrealized gains, and critics pointed out that extreme volatility is a fatal flaw for national assets. Ultimately, these “paper profits” undermined financial stability and the original goal of making Bitcoin a practical currency.
4. International Backlash and the Great Retreat
El Salvador’s experiment faced strong resistance from the global financial order from the start.
Warnings from the IMF and World Bank
The International Monetary Fund (IMF) strongly urged the repeal of Bitcoin’s legal tender status citing fiscal stability concerns, and the World Bank refused technical support, isolating El Salvador internationally.
El Salvador waves the white flag
By the end of 2024, facing a financial crisis, El Salvador agreed to a $1.4 billion bailout with the IMF. As part of the deal, in January 2025, it removed the mandatory clause requiring all businesses to accept Bitcoin, effectively abandoning the core of the experiment. Bitcoin remained only in name as legal tender.
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The Pros and Cons of El Salvador’s Bitcoin Experiment
| Positive Aspects (Pros) | Negative Aspects (Cons) |
|---|---|
| Increased national brand awareness | Most policy goals failed (financial inclusion, remittance innovation, etc.) |
| Attracted cryptocurrency tourists | Widespread public rejection and distrust |
| Temporary investment gains | Increased fiscal risk due to extreme volatility |
| Set a precedent for digital currency experiments | International isolation and credit rating decline |
Conclusion: A Cautionary Tale of the Bitcoin Republic
By the government’s own standards, El Salvador’s Bitcoin experiment was clearly a ‘failure’. Yet this costly trial left the world with several important lessons:
Key Takeaways
- Limits of technological solutionism: No matter how innovative, technology cannot succeed without social, cultural, and technical foundations.
- Risks of top-down policies: Policies imposed without broad social consensus lead to public resistance and neglect.
- Strength of existing financial order: It is nearly impossible for a single country to unilaterally change the global financial system.
President Bukele’s high approval ratings stem from improved security due to gang crackdowns, not Bitcoin. This shows the public’s enthusiasm for other successes can overshadow economic policy failures. Today, El Salvador is home to a few tourists buying coffee with cryptocurrency and the majority living on worn US dollar bills. This paradoxical scene embodies the complex reality of this bold gamble—neither a jackpot nor a bust.
What do you think about a country adopting cryptocurrency as legal tender?
References
Chosun Ilbo Whatever else, El Salvador envies Bitcoin
Hankyoreh World Bank rejects El Salvador’s request for Bitcoin currency support
Global Economic Two years of El Salvador’s Bitcoin legal tender… the experiment failed
Hankook Ilbo Why El Salvador embarked on a reckless experiment to make Bitcoin currency
Americas Quarterly In El Salvador, Bitcoin’s Retreat Left Valuable Lessons
Wikipedia Bitcoin in El Salvador
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KDI Economic Information Center The great economic experiment, Bitcoin project