At the Bitcoin Conference that took place in June in Miami (USA), the President of El Salvador Nayib Bukele announced that his country would adopt bitcoin (BTC) as a legal tender.
This news was met with huge applause from the conference audience and also generated raves online from some of the biggest bitcoin advocates such as Caitlin Long , Michael Saylor and Peter McCormack . Others, including many citizens of El Salvador, were not so excited.
After months of protests and controversy, El Salvador's “bitcoin law” entered into force on 7 September .
In this article, Decrypt recaps everything that happened about this big event, from protests and bitcoin volcanoes to illegal arrests and lawsuits.
bitcoin hits the beach
Since its inception more than a decade ago, bitcoin has been widely regarded as anti-state, a financial alternative to those who reject government hype and the perceived privacy transgressions of the current financial system.
But in El Salvador, Bitcoin underwent a turnaround: it became a currency of choice for the state.
"Next week, I'm going to send Congress a bill that will make bitcoin a legal currency," Bukele told an excited Miami audience.
Despite the unprecedented decision, Bukele's initiative borrowed a part of the bitcoin manual. Its policy was created to protect against inflation in El Salvador.
El Salvador, one of the few non-US economies that uses the dollar, relies heavily on international remittances — payments from people working abroad, usually in the US, and sent back to their friends and family.
Like many bitcoiners, Bukele lamented the fact that the dollar was prone to inflation. To make matters worse, Salvadorans have no political control over the currency.
If the American capital of Washington adopts economic policies that generate inflation, Salvadorans can only watch and see their purchasing power decline.
No more. Given bitcoin's remarkable quality as an inflation hedge, cryptocurrency became Bukele's choice.
“Today, the world changes for the better. Today, humanity takes a leap forward in instigating human freedom, financial inclusion and more,” said Jack Mallers of Strike on the day of Bukele's announcement.
Getting the world's attention
When Bukele announced his membership in bitcoin in Miami, he was talking to a microcosm of intensely passionate bitcoin maximalists in the broader crypto community.
The rest of the world was less excited about the idea of bitcoin gaining legal tender status in a country.
In June, the International Monetary Fund (IMF) said El Salvador's decision to adopt bitcoin as its legal currency had raised several "macroeconomic, financial and legal issues that require very careful consideration."
In the same month, the World Bank said it would not help El Salvador's move to adopt bitcoin because of concerns about the cryptocurrency's lack of transparency and its impact on the environment.
JPMorgan raised another red flag. “There are clearly important consequences for this country, but it is difficult to see tangible economic benefits related to joining bitcoin as a second form of legal currency,” said analysts at the bank.
There is also controversy surrounding Zap Solutions Inc., whose Strike digital wallet was used to facilitate money transfers to crypto in El Salvador.
An investigation by Decrypt found that Zap does not have a license to operate in most US states. Experts suggest this means that many cryptocurrency transactions to El Salvador using Strike were possibly illegal.
Neither Strike nor CEO Jack Mallers responded to Decrypt's requests for comment. However, since then, Zap has gained currency transmission licenses in 17 US states.
In November, some of the issues raised by the World Bank and IMF were also mentioned by the Bank of England (BoE).
Andrew Bailey, chairman of the bank, said what worried him most about the country's welcome to bitcoin was whether "El Salvador's citizens understand the nature and volatility of the currency they have."
But the past seven months have suggested that El Salvador's citizens understand bitcoin but don't want to be forced to use it as legal tender.
National disputes involving bitcoin
In El Salvador, the launch of the bitcoin law and the government's digital wallet, Chivo, was far from easy.
In December, Salvadorans began reporting that the bitcoin balance in their Chivo wallets was disappearing without explanation. To make matters worse, President Bukele has not responded to these reports.
But the complaint many Salvadorans make is not about the technology, but about the premise that bitcoin is mandated by the state. Previously, Bukele had said that Salvadorans wouldn't have to use bitcoin if they didn't want to, but that wasn't the case.
“What if someone doesn't want to use bitcoin? Not good. Don't download the [Chivo] app and continue living your life normally,” he tweeted in August.
But this contradicts Article 7 of the new law , which states: “Every economic agent must accept bitcoin as payment when offered to them by anyone who accepts a good or service”. So bitcoin is not optional for local merchants.
Salvadorans relentlessly protested bitcoin. Universities also conducted several surveys showing that the vast majority of Salvadorans believed that Bukele's bet on bitcoin was a bad idea.
Jaime Guevara, deputy leader of the opposition party in El Salvador, the Farabundo Martí National Liberation Front, even filed a lawsuit against the government. Guevara was supported by a group of citizens who believe the law is unconstitutional and harmful.
So far, these initiatives have not had much impact: Bukele, known for a series of authoritarian measures, has not hesitated to wave his bitcoin flag.
A public blockchain without transparency
In September, Salvadoran authorities arrested ( without a warrant for his arrest ) well-known bitcoin critic Mario Gomez.
“The police kidnapped Mario. He was 'arrested' without a court order,” an anonymous local entrepreneur told Decrypt. Otto Flores, Gomez's lawyer, also said that "it was not clear why Mario was handcuffed."
Amid El Salvador's fierce battle against bitcoin critics, the country's courts have quietly extended Bukele's grip on power .
In September, a ruling allowed Bukele to serve two consecutive terms as president – a decision deemed unconstitutional by foreign powers, including the United States.
Jose Miguel Vivanco, another Bukele critic, didn't mince words when he tweeted: “And now If we are guided by Venezuela's history, [there will be] press censorship, restrictions on civil society, total impunity for human rights violations, imprisonment of opponents, and electoral fraud”.
Buying bitcoin, but when and how much?
Currently, Bukele has acquired more than 1,000 BTC with public money.
The search for the phrase “buying the dip” provides some insight into the president's bitcoin policy. For example, Bukele bought 150 BTC, 420 BTC, 100 BTC in September, October and November respectively.
But that's where transparency ends. So far, no one knows who controls the country's private keys, which is a serious problem considering the fact that El Salvador's bitcoin is being added to the Treasury.
“There are a lot of things that are not being publicized,” said Nolvia Serrano, leader of BlockBank's El Salvador operations, speaking to the Decrypt Daily podcast in September.
“For example, who owns the private keys of these bitcoins? Also, where is the criterion to say: 'Ah, today, let's buy more bitcoins' or 'let's wait until next month'. We don't know that.”
Serrano added: "There is no room to make wrong decisions about this and we need to be transparent because the cryptocurrency community cares about these principles."
*Translated and edited by Daniela Pereira do Nascimento with permission from Decrypt.co .
The post How was the controversial year 2022 for bitcoin in El Salvador first appeared in Bitcoin Portal .