Just a few hours after the launching of Bitcoin as a legal tender in El Salvador, digital currency adoption has faced crashes over tech problems. This is after the government had to temporarily take the storage app offline and slumping of global prices.
As reported by President Nayib Bukele on his Twitter, the digital wallet app called Chivo, which is Salvadoran slang for cool, would crash when the server capacity was increased. However, Chivo, which offers its users an initial $30 of free bitcoin, went back online a few hours later and was supervised by Bukele himself via Twitter. It was available on Huawei and Apple phones by midday, while the government wants it to be also available via Google.
Along with the system crash, the global price of Bitcoin also went down by almost 17% to $43, 119 before recovering to trade at 10% lower. The US crypto exchange, Coinbase, also experienced similar technical issues that delayed or cancelled some transactions. This crash comes a day after El Salvador became the first country to make Bitcoin legal tender after buying 400 bitcoins. On Tuesday, Bukele said the government had bought additional 150 bitcoins, totalling 550.
The Country’s Bitcoin Adoption
El Salvador, the small Central American nation, became the first country to adopt the use of Bitcoin as legal tender in its transactions. The plan was discussed in congress in hours and implemented just in 90 days. However, the majority of Salvadorans, economists, and the international financial community, including the IMF, were against the move. For instance, Moody's, rating agency, criticized the country’s debt rating in part because of the law, while IMF warned the country that the plan could further destabilize the $25 billion economy.
Hundreds of Salvadorans matched on the streets of San Salvador on Tuesday carrying placards against bitcoin and a recent reform that requires all judges over 60 years to resign. According to a video posted on Twitter, a group of young protesters is seen outside one of the Chivo cash machines chanting against the bitcoin move. Several opposition lawmakers also turned up to the legislature wearing black anti-bitcoin T-shirts.
In his defence, Bukele said accepting the move will help to improve investment and financial services access in the country. He also said on Tuesday morning that his team was working on increasing server capacity to scan images. While asking the public to be a little bit patient, he said on Twitter that the problem is relatively simple but cannot be fixed with the system connected.
The Experts’ Advice
According to Luis Membreno, an economic consultant who advises local and international companies in El Salvador, the problem with the Chivo was foreseeable. In his statement to Financial Times, he said that the current and future problems with the app could generate massive losses to people if they fail to convert bitcoins to dollars. This will result in a loss of confidence in the system.
The government has, however, backed up the plan with $150 million, though many economists still believe this will not be enough to deal with risks by allowing tax payments in bitcoin while liabilities remain in dollars.
(Written and edited by The Decision Maker Team)