In a bold move that captured global attention, El Salvador became the first country in the world to adopt Bitcoin as legal tender in September 2021. Two years later, on December 4, 2023, the nation celebrated a major milestone: its Bitcoin reserves turned a profit for the first time. This moment marked a turning point in the country’s economic experiment—one that had been met with widespread skepticism from international financial institutions, economists, and even its own citizens.
Despite criticism and early setbacks, El Salvador’s embrace of cryptocurrency has yielded tangible results: rising GDP, increased foreign investment, and a renewed interest in tourism. But how exactly did Bitcoin change the nation? And is the so-called "Bitcoinization" truly working?
Let’s explore the journey of El Salvador’s digital transformation and assess the real impact of making Bitcoin a national currency.
The Road to Bitcoin Legalization
In June 2021, President Nayib Bukele introduced a bill proposing that Bitcoin be recognized as legal tender alongside the U.S. dollar. The legislation passed swiftly through Congress, and on September 7, 2021, El Salvador made history.
Bukele argued that adopting Bitcoin would modernize the economy, reduce reliance on traditional banking systems, lower remittance costs (which account for nearly 25% of the country’s GDP), and attract tech-savvy investors. His vision was clear: position El Salvador as a forward-thinking hub for blockchain innovation.
To encourage adoption, the government launched several initiatives:
- Citizens received $30 in Bitcoin upon registering for the Chivo Wallet, the state-backed digital wallet.
- Crypto-fiat ATMs were installed nationwide to enable seamless conversion between Bitcoin and dollars.
- Street-level consultation kiosks provided education and support for those unfamiliar with cryptocurrency.
- Incentives such as fuel discounts were offered to those paying in BTC.
- A visionary plan was unveiled to build a Bitcoin City powered by geothermal energy from volcanoes, where Bitcoin mining would be tax-free.
President Bukele himself became a vocal advocate, frequently engaging with the public on social media to promote understanding and trust in the new system.
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Facing Criticism and Economic Challenges
The decision was far from universally welcomed. Protests erupted across the country, with citizens fearing economic instability and increased inflation. International institutions echoed these concerns:
- The International Monetary Fund (IMF) warned of macroeconomic risks, including financial volatility and regulatory challenges.
- The World Bank declined technical assistance, citing environmental concerns related to Bitcoin mining and transparency issues in financial governance.
Indeed, inflation did rise after Bitcoin’s adoption. The consumer price index climbed from 110 in 2021 to 128 by early 2023, reflecting higher living costs. However, the government responded proactively—wages increased by 7% between 2021 and 2022, outpacing inflation at 5%. This wage growth helped offset rising prices and improved household purchasing power.
Meanwhile, El Salvador’s GDP grew from $29.4 billion in 2021 to $32.4 billion in 2022, signaling stronger economic output and expanding industries. While correlation doesn’t imply causation, many experts agree that Bitcoinization contributed to renewed investor confidence and business growth.
Additionally:
- Tourism surged by 30% following the Bitcoin law.
- Unemployment dropped significantly.
- Foreign direct investment increased, with new pathways like citizenship-by-investment: individuals can obtain residency by investing $1 million in Bitcoin or USDT.
These developments suggest that despite initial turbulence, the broader economic outlook has improved.
El Salvador’s Bitcoin Holdings: A Strategic Reserve
As of December 2023, El Salvador holds 2,381 Bitcoins, valued at approximately $104.8 million—a figure that finally surpassed its total acquisition cost. This places the country fourth globally in terms of national Bitcoin holdings, behind only the United States, China, and Ukraine.
While this amount represents just 0.011% of Bitcoin’s total supply, it reflects a strategic long-term bet on digital assets. For context:
- MicroStrategy holds over 174,000 BTC.
- Tesla owns around 10,000 BTC.
- Even corporate players like CleanSpark Inc. hold more than El Salvador.
However, El Salvador’s average purchase price stands at **$42,433 per BTC**, slightly higher than early adopters like MicroStrategy ($36,785) and Tesla ($34,000), who began accumulating when prices were lower. Still, with Bitcoin’s price rebounding in late 2023, the national portfolio is now in positive territory—a symbolic victory for the government.
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Is Bitcoin Actually Used in Daily Life?
Despite government efforts, everyday use of Bitcoin remains limited. Travelers and researchers report that while awareness is high, practical adoption lags.
Key barriers include:
- High transaction fees (up to 5%) at crypto-fiat ATMs.
- Slow processing times—conversions can take up to 30 minutes.
- Limited merchant acceptance: only about 12% of businesses accept Bitcoin payments.
Many citizens still prefer using U.S. dollars for daily transactions. Some lack technical understanding of cryptocurrency; others simply don’t see the benefit of switching from a stable, familiar currency.
The Chivo Wallet, while widely downloaded, sees low active usage. Critics argue that top-down enforcement hasn’t translated into organic demand—a crucial factor for sustainable financial transformation.
Frequently Asked Questions (FAQ)
Q: Did El Salvador make money on its Bitcoin investment?
A: Yes. As of December 2023, El Salvador’s Bitcoin holdings exceeded their total purchase cost, marking the first time the reserve turned a profit.
Q: Can you live entirely on Bitcoin in El Salvador?
A: Not realistically. While legally accepted, few merchants accept BTC for daily purchases. The U.S. dollar remains dominant in everyday transactions.
Q: How has Bitcoin affected inflation in El Salvador?
A: Inflation rose after adoption, but wage increases outpaced price growth. The government attributes economic gains to broader reforms alongside Bitcoinization.
Q: What is the Chivo Wallet?
A: It’s a government-issued digital wallet designed to promote Bitcoin use. Users received $30 in BTC upon registration and can transact with minimal fees within the network.
Q: Can foreigners invest in El Salvador using Bitcoin?
A: Yes. The country offers citizenship to those who invest $1 million in Bitcoin or USDT, making it one of the most crypto-friendly nations for investors.
Q: Is El Salvador’s economy more stable now?
A: Economic indicators show improvement—GDP growth, rising wages, increased tourism—but long-term stability depends on continued fiscal responsibility and broader financial inclusion.
Final Thoughts: A Work in Progress
El Salvador’s Bitcoin experiment is far from perfect—but it’s undeniably transformative. The country has redefined what’s possible when a nation embraces decentralized finance at the policy level. It has attracted global attention, sparked innovation, and created new economic opportunities.
Yet challenges remain. True financial inclusion requires more than legislation—it demands education, infrastructure, and trust. For Bitcoin to become truly habitual, it must offer clear advantages over traditional money in speed, cost, and convenience.
Whether other nations follow suit will depend on how El Salvador sustains this momentum over the next decade. One thing is certain: history has already been made.
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