El Salvador鈥檚 move to become the first country in the world to make bitcoin legal tender on 9 June has been met with protests and bedevilled by fraud, market volatility and technical glitches. Now the Central American nation has had to suspend a key function in Chivo Wallet, its government-issued smartphone app used to store and exchange bitcoin, because economic traders were exploiting it to make a profit.
El Salvador鈥檚 president, Nayib Bukele, has bitcoin as a way to save Salvadorans an estimated $400 million a year lost in remittance fees, to bring banking to the 70 per cent of the population that lacks access and to boost the nation鈥檚 economy.
However, because bitcoin is a nascent currency, its value swings wildly, 17 per cent on 7 September when Chivo Wallet launched.
Advertisement
To encourage bitcoin exchanges, Chivo Wallet allowed users to freeze prices for 1 minute when previewing them. It was intended to stabilise transactions and ensure that, for example, a customer knew how much they were paying for a meal in a restaurant and that the restaurant knew how much they were receiving for it.
But traders have been exploiting the function by comparing the wallet鈥檚 frozen price against bitcoin鈥檚 real time market value when exchanging it for US dollars. If the market price of bitcoin rises during the 60 seconds after the freeze, they buy the cryptocurrency at the wallet鈥檚 lower frozen price. If the price falls, they sell it.
This practice, which is legal, is known as scalping. Chivo Wallet announced that it was the value-freezing function and all visibility of pricing on 18 October because it claimed people were using it to commit 鈥渇raud鈥� to make 鈥渆ndless鈥� profit.
While other cryptocurrency exchanges cover losses from scalping with their commission fees, in El Salvador it is taxpayers who foot the bill with a
The issue further erodes confidence in Bukele鈥檚 vision of the country becoming a crypto-state, and critics say it shows the naivety of trying to regulate an anarchic currency designed to be decentralised.
鈥淓veryone is blinded now, they have no idea what price they鈥檙e buying bitcoin at,鈥� says Oscar Salguero, a crypto enthusiast from El Salvador who says Chivo Wallet was rushed out before it was ready for commercial use. 鈥淎nd people were already losing trust in the application!鈥�
Bukele, though, is still touting the benefits of the cryptocurrency. He has announced that profits from a recent surge in bitcoin鈥檚 value will be used to build a veterinary hospital called 鈥淐hivo Pets鈥�, and the world鈥檚 first volcano-powered bitcoin mine 鈥� a bank of powerful computers run on geothermal electricity 鈥� started production on 1 October.
鈥淐hivo鈥� is slang for cool, but the reaction from Salvadorans, distrust bitcoin and oppose businesses being forced to accept it, has been anything but. Many have taken to Twitter to complain and some have protested on the streets. On 15 September, a Chivo ATM was
In July, many Salvadorans found that the $30 in bitcoin they were promised for opening a Chivo Wallet had already been claimed And when bitcoin became legal tender on 7 September, Chivo Wallet was taken offline for hours as the servers crashed. When Bukele isn鈥檛 using Twitter to champion his bitcoin plan, he is often offering tech support.
As well as bitcoin鈥檚 volatility making it unsuitable for use as a national currency, a lack of internet coverage and trust in government in El Salvador means that it is doomed to fail, says David Gerard, author of Attack of the 50 Foot Blockchain. And it is unlikely to be faring as well as Bukele claims, adds Gerard. Bukele used Twitter on 30 September to state that there were .
Neither the Salvadoran presidency nor Chivo Wallet responded to a New 杏吧原创 request for information on how they will address the latest technical issue.
El Salvador鈥檚 bitcoin gamble is being watched closely across the world. Panama introduced a bill this month that could lead to bitcoin becoming legal tender there, and there are reports that the Polynesian kingdom of Tonga could follow suit.
