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In the summer of 2021, El Salvador’s President Nayib Bukele announced that the country would become the first in the world to adopt Bitcoin as official currency. And crypto fans didn’t hesitate to take a victory lap.

Crypto advocates aren’t just excited because one country has adopted the currency. Some see El Salvador as the proving ground needed to show the world that cryptocurrency can work in other countries — and maybe, even, everywhere.

Attempts to integrate Bitcoin into real-world economies aren’t limited to El Salvador. Similar schemes have launched over the past several years in places like Guatemala, Brazil, Philippines, Central African Republic and Venezuela — though these latter two jumped off the crypto bandwagon before it really even started moving.

I’d argue that El Salvador is, in fact, perhaps the ideal place for a digital cryptocurrency to take off. If it’s going to work anywhere, it should work in there — and if it doesn’t? Well then, things don’t look so good.

Big Changes with Bitcoin

I spent a week in the country last spring listening to the opinions of Salvadorans on the new currency. But I also heard about a great deal more that’s happened over the past five years, since President Bukele — the same who committed El Salvador to crypto — took office in 2019. Let’s discuss those changes, both because they’re fascinating, and because I don’t believe it’s possible to understand how cryptocurrency is (and is not) changing the country without it.

El Salvador has become, quite suddenly, very safe to visit. And this isn’t an accident: since entering office, Bukele has taken a very heavy hand to crime. As of last fall, sixteen of every 1,000 people in the country were in prison, the highest incarceration rate in the world. (As an aside, Cuba’s rate is the second-highest — as I discussed in several posts on Cuba’s expanding internet access, while the US embargo against the country has been extremely harmful, the Cuban government isn’t squeaky-clean, either.)

Human rights groups have sounded alarms regarding Bukele’s tactics, and he’s even called himself the “world’s coolest dictator.” But it’s worth noting that nearly everyone I talked to in the country seemed extremely happy with what he’s done. I saw in those I asked a real sense of joy over the freedom and security they now feel — for some, for the first time in their lives.

Just look at the drop in murder rate over the past several years: a ~45x drop in homicides per 100k inhabitants in less than a decade, from 106.3 in 2016 down to 2.4 in 2023. And the rate has declined especially steeply since Bukele took office.

And tourism has grown in turn. The country has rapidly moved from a place largely avoided by tourists to one where I met some happily hitchhiking the coast. An international surf competition featuring athletes from all around the world took place while I was there, too.

As even the same HRW article linked above points out, “El Salvador’s President Nayib Bukele is highly undemocratic, highly abusive — and highly popular.” Indeed, only this February he won re-election in a landslide, garnering at least 83% of the popular vote.

A Fertile Bitcoin Proving Ground

Salvadorans have historically competed with a number of financial challenges worth addressing somehow, whether or not cryptocurrency is the best way to do that. These include a heavy dependence on cash, a high number of unbanked citizens, and the Salvadoran economy’s high reliance on money sent home from abroad.

Around 70% El Salvador is — or was, at least before digital payments and crypto adoption — unbanked, which has real implications for the economy and individual lives. El Salvador’s heavy reliance on cash adds friction to daily transactions and secure money storage, and can make it hard or impossible for citizens to save and earn interest, build credit, receive loans, and participate in the formal economy. It can make it harder for individuals in need to receive government financial assistance, and also tends to increase corruption.

The 70% unbanked figure is also important for evaluating the country’s crypto adoption. As I’ve written regarding the rapid uptake of “superapps” in places like China, it’s much easier to bring a population onto digital payments (or digital currency) if credit cards and mobile payments have been previously unavailable. It follows from this that if crypto can function as mainstream currency anywhere in the world, it probably should in El Salvador, where cash has been the primary alternative.

Another factor making El Salvador an enticing place to pilot digital currency is that the country relies heavily on remittances. It’s estimated that the total value of global remittances in 2024 will total at least $887 billion — a likely underestimate, as many go through unofficial channels. “Egypt’s remittance receipts are greater than revenue from the Suez Canal; Sri Lanka’s exceed tea exports; Morocco’s are larger than tourism earnings,” writes the IMF. And because they tend to move money directly between friends and family, remittance funds frequently go directly into the hands of those who need it.

At least, except for remittance fees, which can be extortionate — and where advocates hope cryptocurrency can help. A phenomenal ~25% of El Salvador’s entire GDP stems from remittances, and according to PWC, Salvadorans sending money home from the US can face fees up to 30-50% of the transfer value. I’ve seen fees closer to 5-10% myself, but even this is far too high. American cash transfer apps like Venmo, PayPal, or Zelle charge mere fractions of this, if anything at all..

Crypto Solution to Real Problems?

So why is El Salvador such an interesting, even promising, proving ground for cryptocurrency?

1. A cash-heavy economy. This can increase corruption and hold a country back from moving to internet-driven income and activity. It introduces inefficiency to day-to-day transactions, and challenges for governments in tracking finances and collecting taxes. (An interesting point, given the usual libertarian lean of the crypto community.)
2. A large unbanked population. This can make it harder for Salvadorans without bank accounts — apparently 70% of the population as of 2021 — to save money, invest and earn interest, obtain credit and receive loans, and receive government services.
3. Heavy dependence on remittances. Money sent from abroad makes up an astonishing ~25% of El Salvador’s GDP, and companies managing the transfers extract enormous fees, up to even 30 – 50% of the transfer value.

Crypto advocates Bitcoin adoption can help address these problems. But is it the only way?

How Bitcoin Beach Started

In 2019, a surf-loving US expat joined forces with an anonymous cryptocurrency donor to inject capital into the economy of a tiny coastal town called El Zonte, later nicknamed “Bitcoin Beach.”

They created an initiative aiming to bring in tourism and create local jobs, though with the stipulation that any money paid to residents of El Zonte should stay in cryptocurrency. The goal of this was to create, as their website states — using grammar and capitalization bizarre enough to question the site’s legitimacy — the world’s “first circular economy on bitcoin.”

Around the same time, a US company named Athena Bitcoin installed a Bitcoin ATM in the town — and then installed more after receiving positive feedback. And then the “Bitcoin Law” was passed, bringing the currency into official circulation. And everyone was off to the races.

With government involvement, the ATMs were rebranded as “Chivo” ATMs, and the government worked with Athena to build a crypto wallet app with the same name. (“Chivo” is Salvadoran slang for “cool,” though the word also means “billy goat.”) I met Salvadorans using various apps, though Chivo, with government backing, seemed the most popular. Today the countries hosts over 200 Bitcoin ATMs, even after some were lit on fire in protest over Bukele’s strong-hand policies and the “Bitcoin Law” a few months after it was announced.

It’s worth noting the strong incentives provided to encourage Salvadorans to adopt Bitcoin. Anyone installing and registering with Chivo received $30 in cryptocurrency credit, as well as discounts on gas and reduced transaction fees. And because the median income of El Salvador is about $90 per week, it’s a sizable sum.

Since the creation of Chivo Wallet and distribution of Bitcoin ATMs around the country, businesses have begun accepting cryptocurrency payments, and citizens have used Chivo and other crypto wallets to send person-to-person payments. Or at least, that’s the story.

Bitcoin Beach Today

What I saw when I arrived in El Salvador aligned largely — though not entirely — with journalism and research assessing crypto’s success in the country to this point. Perhaps unsurprisingly, the results of the country’s crypto experiment to this point are significantly less-rosy than the image espoused by crypto advocates, including President Bukele himself.

“I think it will be like other things. Those with money will get more,  and those with less won’t benefit.” — Mario, a hotel worker in San Salvador

A survey of 1,800 Salvadoran households conducted by Yale Researchers last year found that “almost 20% of people who downloaded” the Chivo app hadn’t yet used the $30 Bitcoin incentive provided by the government. And another by the University of Central America’s public opinion institute found that “88% of Salvadorans did not use [Bitcoin] in 2023” at all.

But what of remittances, money sent home by Salvdorans working abroad, often subject to extortionate fees? According to the same sources, “Just 1% were sent in Bitcoin.”

This aligns with what I heard there, too. While a few I met use and even love Bitcoin, most seemed ambivalent. Either they used it a little but not extensively, had used it and then stopped, or didn’t really care. I asked a pharmacy in the capital if they accept Bitcoin, and the clerk said they do — but added that the payments machine was down. And when I asked at a mobile data shop in Santa Ana, a smaller city, the representative laughed and said they only take cash.

Paula, an employee at Casa Clementina in Suchitoto, told me “the only place that people care is in El Tunco,” the coastal area encompassing Bitcoin Beach. After the initial flurry around the $30 government gift to pilot the currency, she said, no one seemed to care.

The findings of the Yale researchers back this up. They note that “most people who spent their [$30 Bitcoin] bonus didn’t continue to use the app after doing so.” And they found hesitancy among many to move from cash to digital apps because they lack anonymity, saying this helps explain “why Chivo Wallet was not even used to conduct transactions in dollars” by some.

The researchers warn policymakers “hoping to adopt digital currencies in their own countries: like Chivo Wallet, any digital currency will require governments to keep a record of users and their transactions; if people don’t trust the government or the technology, they won’t use it.”

It’s ironic, of course, that Bitcoin — the hero currency for many among the libertarian and government-wary — might struggle to see adoption because of fears of government oversight. But is it surprising?

All this said, tech rollouts always face hiccups, and what starts slowly can dramatically pick up speed. A woman at a Super Selectos chain grocery told me people do frequently pay for groceries using Chivo Wallet there. And I met enough others — a tour guide in Santa Ana; a man in a San Salvadoran art museum — who were enthusiastic about Bitcoin’s promise for the country, and had friends who felt the same. It was clear to me that Bitcoin wasn’t nothing.

And so I went to El Zonte — Bitcoin Beach, where it all began — to find out.

El Zonte in El Salvador

I believe a problem with cryptocurrency press coverage is that it tends toward the Biblical: either Bitcoin is a savior coming to save the world, or a devil that will doom it. But what if it’s just another piece of technology, as mundane as Venmo, M-PESA or AliPay?

I visited El Zonte, the headwaters of El Salvador’s Bitcoin adoption, to see for myself what contrasting media reports had told of its impact. If El Salvador is seen as a proving ground for Bitcoin’s global viability, then El Zonte, Bitcoin Beach, might serve as the same for El Salvador.

I was surprised at the size of the town when I arrived — even the term “town” feels generous, given its few paved roads and 3,000 inhabitants. It took me about ten minutes to see the town on foot, passing a handful of ramshackle hostels and hotels catering to backpackers and beach bums. I watched surfers at sunset on the beach, and some men drinking and smoking beside an empty building asked if I’d like to join.

But I also found a number of new, upscale hotels and coffee shops, likely catering to the waves of incoming tourists now entering the coastal town. And lots of signs advertising the acceptance of Bitcoin payments.

I spoke with a barista named Elizabeth in one, who said she likes Bitcoin. But when asked why, she told me it’s because the app is easy, that “you don’t have to have cash, or make change.”  She likes it for accepting tips, and keeps about $20 worth of Bitcoin in her app account to send to others, like a slush fund — not unlike how some in the US will keep small payments in their Venmo accounts, never bothering to cash out. But Elizabeth transfers most of her tip money to US dollars, because it’s more stable.

And Larry, her coworker, said something similar — that the crypto apps are nice, especially for tips, but that he transfers any large Bitcoin sums into dollars. (Though he does sometimes move dollars into Bitcoin if the price comes down, treating it like an investment.)

I looked back at what I’d been told by others that week, and it struck me: most who said they like Bitcoin didn’t seem to like Bitcoin per se, so much as the convenience of digital payments. Whether that meant crypto or dollars or anything else though, didn’t much seem to matter.

Just Another Payments App

According to the World Bank in 2022, “two-thirds of adults worldwide now make or receive a digital payment,” a number that’s likely risen since. Is it any surprise that Salvadorans should want the same convenience enjoyed by so many others?

Kenyans began using M-PESA as early as 2007, which allows individuals — even via text, for those without smartphones — to store, transfer, and receive cash throughout the country via accounts tied to their phone numbers and a local agent network. And applications like it have grown in popularity, especially in Sub-Saharan Africa, which “accounts for two out of every three dollars sent via mobile money worldwide.” 43% of Ugandans and 72% of Kenyans have mobile money accounts, and the stated mission of one such company even aims to “make Africa the first cashless continent.” M-PESA and the like can be used to send remittances, too.

And it’s not just sub-Saharan Africa moving rapidly from cash to digital money — much of east and southeast Asia have done the same with native currencies through apps like AliPay, WeChat and LINE Pay. And in India, digital payments grew at an astonishing rate of 50% annually for at least five years following the country’s disruptive banknote demonetization. When I visited this February, I faced struggles using cash and finally set up Google Pay to make my life easier.

Like so many others around the world, it’s understandable that some Salvadorans might prefer an easy phone payment to carrying around cash — something which, up until very recently, presented an exceptionally large risk. And while I hardly spoke with a representative sample of Salvadorans, we shouldn’t be surprised to learn that some — like the majority of Americans — don’t trust the long-term safety and reliability of Bitcoin, either.

Is Bitcoin even a currency if it’s not used as a secure store of value?

If it Looks like M-PESA…

…Does it even matter that it’s crypto?

Put another way, if M-PESA and other solutions utilizing countries’ extant currencies have already succeeded in places with similar financial challenges to El Salvador — heavy cash dependence, a large unbanked population, and enduring high remittances fees — will cryptocurrency do anything special to help the average Salvadoran?

Or is all the crypto hype in the country just waiting to be disrupted by the entrance of some other mobile money platform, like M-PESA, Venmo, or AliPay?

Indeed, Larry, the restaurant worker, told me he’d recently received access to beta test Cash App, used widely in regions of the US for years. He actually prefers Cash to the popular Salvadoran digital wallets like Chivo, he said, because it’s less buggy. Larry liked that the app just felt smoother, regardless of the currency he used with it.

So even if Larry, one of the few who said he actually likes using Bitcoin, can be won over by an easier app experience, what does this mean for the success of cryptocurrency — not only in El Salvador, but everywhere else? I don’t think we should be surprised if what’s important for most is an easy app experience, rather than a coherent ideology of financial liberation.

Limited as it is today, I wonder if Bitcoin can even sustain its current popularity in El Salvador should an established international payments app ever arrive. Not only are these apps easier to use and more reliable, they also eliminate the need to transfer funds between Bitcoin and US Dollars, as Elizabeth frequently does. And if foreign tourism continues to grow, the incentive for local users to adopt payment systems already popular with foreign tourists will only grow with it.

In fact, another blockchain technology already exists to support the ways I saw Elizabeth, Larry, and others using crypto apps to effectively transfer dollars between each other. Circle and Tether are just two of the companies enabling payments via stablecoin, digital currencies pegged to so-called “fiat” currencies like the US Dollar.

Tokens like these maintain some of crypto’s novel value — like transparency and rapid international transactions — without the challenges of variability and trust inherent in Bitcoin. Indeed, stablecoin use in Argentina has recently skyrocketed in the wake of mounting inflation and the government’s endorsement.

I’d argue, in fact, that “cryptocurrency” in El Salvador today is hardly a currency at all. It’s a transfer technology, a fancy sort of API, a means for digitally transferring dollars from one person to another. Perhaps an investment vehicle — but not a trusted store of value.

In this light, Bitcoin in El Salvador seems little different from airtime credits that have been used to send money via M-PESA for nearly two decades. Few in Kenya likely care that what’s transferring between phones is some abstract thing called “airtime credits” — what matters is that they send, and receive, shillings. Airtime credits are a means to an end, in other words, and it’s hard to see Bitcoin as much more than this for most in El Salvador as well.

El Zonte for Expatriates?

I mentioned my surprise at the size of El Zonte when I arrived. But I was also struck by its seemingly low income, the wild incongruity of someone launching a “circular Bitcoin economy” in this sleepy place with unpaved roads. Here was a highly modern, internet-first digital currency overlaid from above by an anonymous foreign investor, onto a village that didn’t look like it had been touched by time in, well, a very long time.

The amount of Bitcoin invested in the town’s economy isn’t public, but I don’t think it would take a tremendous investment to convince at least some in the town to trial a new currency. Those I met, at least, didn’t seem to begrudge their role in this strange financial experiment. But I couldn’t shake off the feeling it all felt a bit colonial.

And that feeling may not have been far off. Besides the fancy coffee shop where I met Elizabeth and Larry, I saw construction workers building a new luxury hotel. Some in El Zonte are now protesting gentrification because of the new wealth flooding in and the land sold to accommodate it. And it’s money, of course, ushered in by a big spotlight in the shape of a Bitcoin “₿.”

I found Hope House, a community nonprofit and presumptive Bitcoin Beach headquarters, and was struck by its glistening modernity, a piece of corporate San Francisco plopped onto the sleepy town. A blast of AC struck me as I entered the sliding glass doors, and I saw Bitcoin logos and paraphernalia adorning the walls and tables. It was empty except for a few local staffers, and there were Bitcoin Beach pamphlets and stickers on the tables. I realized that whatever Bitcoin had been funneled into El Zonte, the money had surely helped build this, too.

I met a few people in El Salvador who were truly passionate about Bitcoin  — but only a few. They were exclusively men, like most crypto advocates elsewhere, and they spoke like others I know in Silicon Valley or New York or Australia who love cryptocurrency, too. Which is to say that they’re a small, and highly unrepresentative, subset of the population.

One of these men told me about the Twitter handle “Escape to El Salvador,” the bio of which contains a quote from President Bukele: “The plan is simple: as the world falls into tyranny, we’ll create a haven for freedom.” Posts on the account alternate between Bitcoin evangelism, libertarian ideals, and photographs congratulating almost exclusively white, male foreigners who’ve moved to El Salvador to embrace Bukele’s “haven for freedom.” It’s hard not to be reminded of the creepy-if-not-laughable Cryptoland video that emerged during the last crypto rush, or the laughable-if-not-creepy Praxis initiative raising money now.

It’s worth remembering that if El Salvador is a “haven for freedom,” it also boasts the highest incarceration rate in the world. And not every Salvadoran loves Bukele’s Bitcoin embrace — there were the protests following his announcement, and a 2021 poll found two-thirds of Salvadorans disapproved of the move. And even Bitcoin-friendly foreigners who’ve moved there — just as the Escape to El Salvador Twitter account encourages — fear the inevitable gentrification crypto tourism will bring to El Zonte.

Who is Bitcoin For in El Salvador?

And so Bitcoin may be creating a “haven for freedom” in El Salvador — but for whom?

It’s striking that much coverage of El Salvador’s cryptocurrency experiment has, in many ways, neglected the environmental context and common-sense humanity of many Salvadorans themselves.

When I arrived in El Zonte, I couldn’t help but smile at the sometimes-breathless reports applauding the experiment — like that in Forbes, which called the town “rustic,” and conveniently failed to mention what a truly bizarre place El Zonte was to inject a massive amount of foreign capital. And other articles espouse the technology’s potential to lift Salvadorans from poverty, or the need to educate — one might even say “convert” — Salvadorans, often portrayed as poor and illiterate, or at least naive, into Bitcoin Believers. Whether positive or negative, the story told about Bitcoin adoption in El Salvador has frequently cast its citizens as exotic, “other,” somehow unique in their approach to a disruptive technology.

But as we’ve seen, some in El Salvador both enjoy the convenience of Bitcoin payment apps, and feel wary of the currency’s fluctuations and ephemerality. Which is what’d expect of many other rational people, whether in El Salvador, America, or anywhere else, when given the chance to move from cash to digital payments.

Time will tell what ultimately becomes of El Salvador’s Bitcoin experiment. But I won’t be surprised if it fades into the background, one of a dozen other payments apps. Useful, perhaps quietly revolutionary, but hardly exceptional in the global scheme of digital finance.

Written by Ted McCarthy, a UX researcher writing a weekly newsletter exploring the intersection of people and technology around the globe.