Cash used to be king for Carolina Reyes. She would only hand over hearty snacks from her grill on the Pacific coast of El Salvador in exchange for green US dollar bills or rusty old dimes.
But now she is selling her pupusas — the country’s signature stuffed cornbreads — for cryptocurrency.
“It was hard to get used to at first, but I’m getting pretty good at using the app,” she says with a grin, proudly flashing the Bitcoin Beach wallet she uses to receive payments.
Like many Salvadorans, Reyes has never had a bank account. Now she can accept electronic payments from customers — which is useful when they have no cash to hand.
But the 42-year-old mother of four did not jump into the complex world of cryptocurrencies out of curiosity.
Salvadoran businesses were required to accept bitcoin from September 2021, when President Nayib Bukele made the central American country the first in the world to make cryptocurrency legal tender.
The move is already transforming El Salvador’s image and has sparked a boom in tourism. Eventually it will make the country a regional tech hub and lift it out of poverty, Bukele says, with the rest of the world following suit.
But the move is unprecedented. Foreign governments are concerned that bitcoin’s decentralised payments could strengthen the country’s powerful drug trafficking gangs. Economists fret that it could bankrupt the already poor nation.
“I was excited by bitcoin, it seemed good,” Reyes says, as her three daughters wash green vegetables behind her. But she has heard that outside of the tourist region where she lives few want to use it and half of El Salvador’s six million people cannot, as they have no internet access.
“Do you know what? I’m starting to wonder if it’s a good idea, but maybe here, in El Salvador, it simply won’t work.”
From surfing to crypto
Around El Salvador’s postcard black volcanic beaches, bitcoin has already become a hit.
“With all the incredible places that you could visit in Latin America, why else would you come to El Salvador?” says James, a British tourist and cryptocurrency aficionado, shrugging his shoulders. “Bitcoin!”
Room reservations have surged since the cryptocurrency became legal tender alongside the US dollar in 2021.
“Before it was all ‘Surf City’ and now it’s all ‘bitcoin’,” says Carlos Marenco, owner of The Beach Break Hotel in El Zonte, laughing. “For us personally, it’s great business.”
Traditionally the country’s foreign tourists were intrepid surfers, who have been drawn to El Salvador’s legendary waves for decades — even during its brutal civil war.
Now late-night conversations in the local bar are more likely to be about how bitcoin is revolutionising the world than today’s beach break, Marenco says.
Tourism has increased 30 per cent thanks to the bitcoin bump, with many coming to see if their crypto-dream is coming true: Is a peer-to-peer digital token really replacing traditional money?
In the rustic beach town of El Zonte, the answer appears to be yes. “Aceptamos Bitcoin”, (We Accept Bitcoin) signs are riveted to many of the metal shacks which house humble neighbourhood stores.
Luxurious beachfront hotels where guests can pay in bitcoin are emerging from a flurry of construction and the Bitcoin Beach office is nearly ready for inauguration. At the Hope House educational centre, families are attending a class on how bitcoin could benefit them.
The spread of bitcoin in El Zonte inspired Bukele’s decision to roll it out nationwide. Locals began exchanging cryptocurrency on their smartphones after an American crypto-enthusiast sent bitcoin to businesses and NGOs on the condition that they use it for payments.
But there’s a problem
But Bukele’s vision has since outgrown the experiment in the quaint fishing village.
El Salvador’s government has spent US$180 million of taxpayers’ money on rolling out 200 bitcoin ATMs and the national crypto-wallet. It bought $75 million worth of bitcoin on the premise that its value will increase. And it is borrowing $1 billion to buy bitcoin and build a tax-free “Bitcoin City” powered by energy from a nearby volcano.
There is an issue, however: Outside of the beach towns filled with crypto-curious foreigners, no one wants to use it.
“We aren’t going anywhere near that bitcoin thing,” says Cindy Flores, who runs a corner shop in the capital, San Salvador. “We don’t trust it.”
Like at least 1,000 other Salvadorans, Flores logged into the national cryptocurrency wallet last year to find that her identity had been stolen along with the $30 dollar sign up bonus from the government.
Others gave up on the Chivo Wallet when their payments went missing. They tried to pay for products in bitcoin but the transactions froze and bounced back weeks later — or not at all. Some vendors never received payments after handing over goods.
“The main issue with the Chivo Wallet,” says David Gerard, author of Attack of the 50 Foot Blockchain, chuckling, “is that it never actually works!”
And as 27-year-old security guard Christian Solis realises while trying to catch a bus home from San Salvador, bitcoin is only as good as the number of places that accept it.
And except the largest chains, most businesses are sticking with cash.
“Senor, could you do me a favour and change a dollar for bitcoin?” he asks desperately on a main road choked with smoke and the iconic ex-American school buses.
He has $2.57 worth of bitcoin in his Chivo Wallet and the bus costs $0.50. But buses do not accept bitcoin — and it’s probably for the best. “If they accepted bitcoin it would be absolute chaos,” he says. “It can take up to 15 minutes to pay. Imagine.”
Wild profits and wild risks
The main obstacle to El Salvador’s adoption of bitcoin, say its advocates, is not an issue with the cryptocurrency itself, but a lack of education.
“A lot of people get frustrated with the bitcoin apps but I don’t think it’s because they are bad, it’s because they don’t know how to use them,” says hotel owner, Malenco.
In time people will understand the wonders of bitcoin, say crypto-celebrities such as Max Keiser, an American vlogger who tweets the praises of Bukele to his cult Twitter following.
Once bitcoin takes hold in El Salvador it will spread across the globe, its decentralised payments revolutionising the financial world and cleaning up government corruption along the way.
“It is succeeding and now we’re seeing it pop off in other areas of central America,” he tells rapturous fans attending an event in one of El Zonte’s flashy hotels.
A growing number of Latin America countries, including Argentina, Brazil, Mexico and are expressing interest in adopting cryptocurrencies.
As always, first-movers like El Salvador, stand the most chance of bitcoin success.
As the value of one bitcoin grew from less than $1,000 USD in 2017 to more than $43,000 it made many early believers millionaires.
Jose Elías Castellanos owns a family-run shop next to Reyes’ grill in El Palmarcito and hopes the meteoric rise of bitcoin could make him rich too. He bought $900 dollars worth of bitcoin late last year.
“If bitcoin’s value reaches $60,000 I’m up 600 dollars,” he says, excitedly. “But, I bought it at the wrong time.”
Bitcoin’s value has plunged in the last three months. Fewer Salvadorans are paying in the cryptocurrency, he says, as they are reluctant to spend it when it’s worth less than when they bought it.
Bitcoin’s wild price swings render it impractical as a currency, says Gerard. Its value plunged 15 per cent in one hour the day that El Salvador made it national currency.
And most Salvadorans — one-in-five of whom live on less than US$5 per day — are in a more difficult financial situation than the foreigners who gambling their savings on it.
“I open at seven and close at eight but sometimes we are here until 10pm,” says Reyes. Her three daughters help out at after school, preparing food as Reyes tends to the grill and tourists ordering in clumsy Spanish.
Still, they cannot break even and borrow each month from a local loan shark. “We are barely putting food on the table and believe me, there are a lot of people worse off than us.”
Playing with fire
Encouraging Salvadorans to use bitcoin is playing with fire, says architect and social media activist, Roberto Dubon. Forcing them to is immoral.
“Bukele, his followers and these foreigners are playing with El Salvador like it’s a big casino, but these are real lives,” he says. He is not against bitcoin but the adoption of it as national currency. Two-thirds of Salvadorans oppose the bitcoin law and protesters torched crypto ATMs when it was introduced last year.
El Salvador’s bitcoin experiment has been criticised by the International Monetary Fund, who froze negotiations over a much-needed $1.3 billion loan. The country’s credit rating has been downgraded to junk.
“The whole bitcoin experiment is bound to fail,” says Steve H Hanke, Professor of Applied Economics at the Johns Hopkins University.
Bukele marketed bitcoin as a way for Salvadorans to save hundreds of millions of dollars lost in fees each year, as many rely on payments sent from family members working abroad. But only around 2.1 per cent of remittances have been sent in cryptocurrencies since the Bitcoin Law came into effect, Hanke says.
Bitcoin could have banked the unbanked and limited the power of bloated banks and authoritarian governments, says Oscar Salgudero, a software engineer from San Salvador. Instead populists like Bukele are using disingenuously to gain control. “In El Salvador it’s a black box,” he says. The government appears to be the real holders of the bitcoin held in Chivo Wallets and is offering little transparency.
The latest country reportedly flirting with bitcoin is Russia, where President Vladimir Putin is believed to be considering using it to move money across borders after being locked out of the international financial system by western governments in response to its invasion of Ukraine.
In El Salvador, journalists covering opposition to the bitcoin law had their phones tapped by military spyware and activists such as Dupon say they have been harassed by police. Many of the Salvadorans who refuse to accept bitcoin requested to remain anonymous for fear of government repercussions.
Reyes has not heard the accusations that El Salvador or other countries are using the cryptocurrency for power grabs. She had her Chivo Wallet hacked in September so ditched it. She now exclusively uses the privately developed Bitcoin Beach app, which seems more secure, to ensure that she can continue to take payments from tourists keen to play with cryptocurrencies while on their holiday.
“I’m indifferent to it all, it hasn’t benefited me,” she says. “But the foreigners pay in bitcoin. And I’m not going to turn them away, am I? I can’t.”