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Salvadorans are learning why the rest of the world doesn’t use Bitcoin as a currency for everyday transactions.
El Salvador became the first country to adopt the digital token as legal tender on Tuesday, with the government’s Bitcoin wallet Chivo coming pre-loaded with $30 worth of the currency for users who register with a national ID number.
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But it almost immediately ran into trouble — the government had to disconnect the wallet to sort out technical glitches. Bitcoin tumbled as much as 17% in a matter of minutes, and other crypto assets and related stocks crumbled too.
El Salvador’s move is “a stunt that will completely clog the transactions for the majority of Bitcoin holders who really just want it to remain a store of value to hold,” said Carsten Sorensen, a researcher with The London School of Economics. “When individual countries seek to overnight make it legal tender, then the network will easily suffer as there already are issues with the transaction rate.”
While the government says it’s running tests to make the wallet available for download later, the rocky launch doesn’t bode well for the wider adoption of Bitcoin and other crypto currencies. After all, El Salvador’s experiment was supposed to be the digital asset’s biggest test in its 12-year history.
A user campaign on social media to buy $30 worth of Bitcoin en masse to mark the occasion seems to have done little to prop up the price.
People in the violent, impoverished Central American nation may have gotten $30 worth of Bitcoin are now seeing the worth of their currency slashed by almost a fifth in a blink. That shows how the currency’s outsize volatility is still a major hurdle for using it to transact real-world goods. Established currencies like the U.S. dollar, for all its critics and disadvantages, still offers relative stability compared with Bitcoin.
“The notion of any kind of ‘privatization’ of money has clearly caused deep concern with central banks,” Sorensen said.
— With assistance by Eddie van der Walt
