In September 2021, El Salvador became the first country in the world to legalise Bitcoin (BTC) as an official means of payment. This bold move sparked a wave of interest and discussions around the world. The editorial team at itez decided to find out what has changed in the country over the past three years and whether the government's expectations have been met. Here's how the legalisation of Bitcoin has changed El Salvador.
How El Salvador legalised Bitcoin
The idea to make Bitcoin an official currency of El Salvador alongside the US dollar emerged in June 2021. President Nayib Bukele announced this during the Bitcoin 2021 conference in Miami, USA. Just a month later, on June 9, 2021, El Salvador's National Assembly approved the Bitcoin law, which went into effect on September 7, 2021.
According to Bukele, legalising Bitcoin would help the country attract foreign investment, reduce dependence on the US dollar, improve the economy, and provide access to financial markets for citizens who, for various reasons, previously could not use banking services.
The country's authorities took a number of measures aimed at integrating cryptocurrency into the economy. Here are just a few of the initiatives:
- Launch of the national Chivo wallet with an initial distribution of $30 in Bitcoin;
- Installation of cryptocurrency ATMs on city streets, where Bitcoin can be exchanged for dollars and vice versa;
- Creation of information centres for citizens;
- Organization of Bitcoin mining within the country using volcanic energy;
- Introduction of programs for simplified citizenship acquisition through crypto investments;
- Opening of the National Bitcoin Office (ONBTC), tasked with overseeing the development of the country's crypto initiatives.
Additionally, local authorities began purchasing one Bitcoin each day starting on November 18, 2022. As of the time of this article, El Salvador holds 5,800 coins, valued at $331 million.
Countries with the largest Bitcoin holdings. Source: bitcointreasuries
How El Salvador has changed in three years
Three years later, experts still do not have a consensus on whether Bitcoin legalisation has been an economic miracle for El Salvador. On one hand, the country's GDP has been growing during this time.
Gross Domestic Product (GDP) refers to the total value of all goods and services produced within a country over a certain period. GDP growth indicates an increase in economic activity and national prosperity, while a decline in GDP may signal economic slowdown and potential problems such as unemployment or inflation.
El Salvador GDP. Source: World Bank
However, inflation has also risen in El Salvador. Following Bitcoin legalisation, the metric reached 7.76% at one point. Nevertheless, statistics from 2024 suggest that the authorities have managed to curb inflation growth.
Inflation is the rise in the prices of goods and services. Moderate inflation indicates stable demand, while high or uncontrolled inflation points to economic problems, reducing the purchasing power of the population.
Inflation in El Salvador. Source: Trading Economics
National debt has also increased. In 2021, the metric stood at $25.5 billion, but by 2024 it is projected to reach $29.84 billion, with analysts expecting further growth.
National debt refers to the total amount of money owed by the government. An increase in debt can indicate budget deficits and financial difficulties, while a reduction in debt suggests fiscal stability and improvement.
El Salvador National Debt. Source: Statista
The adoption of cryptocurrencies has not been without challenges. Studies indicate that by the end of 2023, only about 1.3% of wallet transfers in the country were made using cryptocurrency. This statistic is not surprising, considering that the country's citizens initially responded to crypto legalisation with protests.
However, there are also claims that crypto integration in El Salvador is progressing smoothly. For example, a social media user posted that buying groceries with Bitcoin in the country has become commonplace. Yet, the author acknowledges that only a small percentage of citizens use cryptocurrency.
New crypto initiatives in El Salvador
In February 2024, Bukele was re-elected as president. The politician decided not to abandon the crypto initiatives announced earlier. One of the main projects is the creation of Bitcoin City, a city whose economy will be fully powered by cryptocurrency. It is planned to be built at the foot of the Conchagua volcano, whose geothermal energy is used for Bitcoin mining.
Bitcoin City concept in El Salvador. Source: X/Nayib Bukele
Interestingly, in August 2024, Bukele announced the attraction of $1.62 billion from Yilport for the construction of the crypto city.
Additionally, El Salvador is actively developing cryptocurrency and blockchain education programs. For example, in 2024, the government decided to send 80,000 civil servants to Bitcoin courses.
Conclusion
The legalisation of Bitcoin was a significant milestone for El Salvador. Over the past three years, the country has gone through many changes—both positive and negative. The economy has received a new boost thanks to crypto initiatives, but inflation and the growing national debt remain serious issues.
Three years is not enough time to draw conclusions about the consequences of such a large-scale decision. However, the confidence of El Salvador's authorities suggests that the chosen path suits the country.
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This article is not investment advice or a recommendation to purchase any specific product or service. The financial transactions mentioned in the article are not a guide to action. It’s not intended to constitute a comprehensive statement of all possible risks. You should independently conduct an analysis on the basis of which it will be possible to draw conclusions and make decisions about making any operations with cryptocurrency.
