The Adopting Bitcoin Conference was incredible, and I’m glad I discovered El Salvador and the state of Bitcoin adoption there.
Bitcoin critics often claim that Bitcoin is useless in the real world and only used by criminals. In response, many participants shared videos of them using Bitcoin at McDonald’s or Starbucks. Great! But it seems artificial—especially if the payer is American—as all these places accept US dollars, credit cards, and Apple/Google Pay. In addition, the user experience is better with contactless cards or phones than with Bitcoin wallets with clumsy QR codes.
However, there are real use cases of Bitcoin in El Salvador, for both locals and tourists, that show the power of Bitcoin.
The first day I arrived, I bought a SIM card for $1 in a local tienda. Then, I had to visit the provider’s website to buy a prepaid plan. I could only pay with Bitcoin or with a card emitted by a local bank. So I HAD to use Bitcoin. The payment experience online is actually better with Bitcoin than with credit cards. With a card, you have to take out the physical card from your wallet, meticulously type your card number, select the expiration day, and finally turn your card to see and enter the security code. And often, after all these steps, your bank sends you a text to confirm the transaction! With Bitcoin, you copy the invoice displayed on the website, open your Bitcoin wallet, paste the invoice, and click on “pay.” And I’m sure in the future, you’ll click on the invoice, and it’ll automatically open the wallet. By the way, with Bitcoin, there are no more irritating restrictions based on where your bank is located.
As a European tourist, I converted foreign currencies to get dollars. When I ran out of dollars, Bitcoin was the only way to pay people. It was way easier, cheaper, and safer—especially at night—than finding an ATM or a bureau de change that would charge me high fees. Similarly, I wanted to pay in cash, but the merchant didn’t have the change, so I paid in Bitcoin: problem solved! As a tourist, Bitcoin is just better than physical cash.
70% of Salvadorans don’t have a bank account. To pay for their electricity bills, they have to go to the electricity company’s office or some local shops and pay in cash. As explained in the documentary below, for those living in villages and small towns, it can be a 3-hour journey to pay a single utility bill! But utility companies now accept payment with Chivo, the government Bitcoin wallet. That’s why our local guide was glad we paid him on his Chivo. As El Salvador is a cash society—only 10% of Salvadorans own a credit card—even those who own a bank account need cash, and there are often long lines in front of banks to withdraw money.
The Chivo wallet can receive US dollars or Bitcoins. And when receiving Bitcoins, Salvadorans can automatically convert them to dollars—probably the most common practice today. In that case, they use Bitcoin as a payment infrastructure and not as a currency. Please note that I ignore how the US dollars on Chivo work. Is it just a centralized bank account in a government bank? Or USDT on ERC-20? Or on Bitcoin (using Omnilayer)? Mystery surrounds the Chivo wallet, and it was often criticized during the conference. The Chivo team wasn’t present at the event, and no one even knows which company built Chivo! Still, Chivo worked for me every time I had to pay a Salvadoran, but many others reported issues. I also noticed a change among some Salvadorans I paid:
First time—their first Bitcoin payment—they converted 100% of the amount to dollars,
The second time, they converted 100% of the amount to dollars and then converted back part of that sum to Bitcoins,
Third payment, they didn’t convert to dollars and kept 100% of the sum in Bitcoins. They told me that because Bitcoin was a non-significant part of their income—most people still pay in dollars—they could use it as savings and didn’t care about short-term volatility.
Chivo critics also often complain that it is a custodial wallet: the government owns the wallet’s keys and can theoretically do whatever they want with the funds. However, the woman I helped set up her Chivo wallet told me one day later that she had lost her PIN… So I’m glad that she could call Chivo’s customer service and recover her PIN.
Remittances are often described as the perfect use case for Bitcoin as they represent 24% of El Salvador’s GDP. The Salvadoran government hopes Salvadorans can save $400 million in fees each year by sending money with Bitcoin instead of money providers like Western Union, which charges 2% fees, or PayPal charging 3.4% in El Salvador! That’s why the government installed Bitcoin ATMs all over the US—mainly in California and Texas, where most Salvadoran Americans live—to allow the diaspora to convert their dollars to Bitcoin and send them without fees to their relatives.1 The president claims that 3 million dollars are remitted every day using Chivo. However, I haven’t met anyone using Bitcoin for remittances. It’ll probably take some time.
Credit card fees are also high in El Salvador (4 to 5%), but the rare businesses that accept them here are for tourists and the upper class, so they may not care that much. (On the other hand, Amazon stopped taking Visa credit cards in the UK, claiming their fees were too high.).
El Salvador’s adoption of Bitcoin is also a stress test for all Bitcoin wallets. I realized how painful the QR code UX was: we need contactless Bitcoin payments asap! Lightning invoices, in general, are cumbersome. For instance, I paid someone, and later, I wanted to tip them back home but could not. The Lightning Address protocol fixes that, but it’s not used at all in El Salvador. During that trip, I also switched from Muun wallet—which had too many issues—to BlueWallet.
Although the above use cases may seem marginal (but “great new things often come from the margins”), for locals, they have a profound impact, especially for the unbanked. So thanks to Bitcoin, El Salvador may leapfrog directly from cash to digital payments.
The El Salvador Series:
Real Bitcoin use cases in El Salvador (this article)
Chivo ATMs don’t accept Lightning, so the sender still has to pay transaction fees. However, I’m not even sure Chivo-to-Chivo transactions are onchain Bitcoin transactions or just numbers changed on a centralized ledger…