El Salvador is the first country in the world to adopt bitcoin as its official currency.
The government of President Nayib Bukele argues that the decision will provide many Salvadorans with access to financial services for the first time and save $400 million in fees on remittances sent home from abroad each year.
Despite significant domestic scepticism and international warnings concerning consumer risks, El Salvador became the first country in the world to accept bitcoin as legal tender on Tuesday.
The government of President Nayib Bukele argues that the decision will provide many Salvadorans with access to financial services for the first time and save $400 million in fees on remittances sent home from abroad each year.
"For the first time in history, the entire world will be watching El Salvador tomorrow. This was done via #Bitcoin "Bukele made the announcement on Twitter on Monday.
He kicked things off Monday evening by revealing that El Salvador had purchased its first 400 bitcoins in two tranches of 200 each, with more on the way.
The 400 bitcoins were worth roughly $21 million, according to the cryptocurrency exchange app Gemini.
Recent opinion polls showed, the majority of El Salvador's 6.5 million citizens oppose the notion and will continue to use the US dollar, which has been the country's official currency for the past 20 years.
"This bitcoin is a non-existent currency, a currency that would benefit the wealthy over the poor," said sceptic Jose Santos Melara, who spoke at a rally in San Salvador's capital last week.
"How can a poor person invest (in bitcoin) when they are barely surviving?"
In June, El Salvador's parliament passed a bill allowing crypto money to be accepted as legal tender alongside the US dollar for all goods and services in the small Central American country.
Bukele's bill was passed into law within 24 hours after being introduced in Congress, where the president's friends have had a majority since March.
Experts and regulators have expressed concern about the cryptocurrency's legendary volatility as well as the lack of any user protections.
Skepticism
The government is installing more than 200 bitcoin teller machines, some of which are being guarded by soldiers to avoid being possible burning by opponents.
Bukele has also promised each resident who adopts the currency $30.
"These are decisions that the administration and lawmakers have made without addressing the community," said Laura Andrade, director of the Central American University's Public Opinion Institute, which showed that 70% of Salvadorans opposed the move in a poll.
"We observe that people do not see a positive influence to substantially improve their living situations," she told AFP.
Nearly two-thirds of Salvadorans polled expressed no interest in downloading the "Chivo" electronic wallet, which allows users to buy and spend bitcoin.
The currency's extreme volatility, according to Oscar Cabrera, an economist at the University of El Salvador, will have a "negative impact" on customers, impacting the price of products and services.
In June, the currency sank below $30,000, less than half of its all-time high of around $64,000 just two months before.
The Salvadoran Foundation for Economic and Social Development (FUSADE), for its part, stated: making it mandatory for merchants to accept bitcoin as a form of payment was "unconstitutional."
Malign actors
Bukele, who is popular but is facing criticism for attempts to strengthen his grip on power, has accused opponents of attempting to "sow fear" among Salvadorans, who have limited access to official banking services.
In the dollarized economy, remittances account for more than a fifth of GDP, with an estimated 1.5 million foreigners sending money in dollars through firms like Western Union.
El Salvador earned more than $5.9 billion in 2020 from people living abroad, primarily in the United States, according to World Bank data.
And the country needs this money to help bolster a faltering economy that shrunk 7.9% in 2020, owing in part to the coronavirus outbreak.
Economists and international organisations such as the World Bank, the International Monetary Fund, and the Inter-American Development Bank are concerned about El Salvador's acceptance of bitcoin.
El Salvador has been advised by the US to guarantee that bitcoin is used in a "controlled," "transparent," and "responsible" manner, as well as to protect itself against "malign actors" such as hackers seeking ransom money.
Regulators have attacked Bitcoin because of its potential for unlawful usage, particularly in money laundering and terrorism financing.
However, not everyone is opposed to it; in late June, Bukele said that 50,000 Salvadorans were using bitcoin.
Hundreds of businesses and individuals in El Zonte's coastal town use the funds for everything from paying electricity bills to buying a can of soda.
The town had El Salvador's only bitcoin teller machine until recently, thanks to a project started by an anonymous bitcoin donor.
