Bitcoin as Legal Tender in El Salvador: What Really Happened and Why It Changed

El Salvador’s Bitcoin Experiment: A Bold Move That Didn’t Stick

On September 7, 2021, El Salvador became the first country in the world to make Bitcoin legal tender. The idea was simple: let people pay for coffee, bus fares, and taxes with Bitcoin instead of just the US dollar. The government promised it would help the unbanked, cut remittance fees, and attract tech investors. But by May 2025, the rules changed. Businesses no longer had to accept Bitcoin. Taxes couldn’t be paid in it anymore. The law still said Bitcoin was legal tender-but in practice, it was stripped of its power.

How It Started: The Chivo Wallet and the $30 Push

The government rolled out the Chivo wallet like a holiday sale. Every Salvadoran with a phone got $30 in Bitcoin just for downloading the app. Gas stations gave 20 cents off per gallon if you paid with it. The government said this would push financial inclusion. Over 3 million people downloaded the app in the first month-that’s nearly half the country. At the time, only 29% had bank accounts. The numbers looked great.

But here’s the catch: most people didn’t use it. Only 12% of consumers actually made a Bitcoin transaction in the first month. Over 90% of businesses said they never received a single Bitcoin payment. The $30 bonus didn’t turn into habit. It turned into a one-time cash grab. People cashed out their $30 into dollars and moved on.

The Volatility Problem: When Bitcoin Crashed on Day One

The launch day was a disaster. Bitcoin dropped 15% in hours. The government had bought Bitcoin at $52,000 to stabilize prices, but the crash still cost them $3 million on paper. That wasn’t just a number-it was public outrage. Protesters gathered outside the Supreme Court. News outlets called it a gamble with people’s money. For a country where most families live paycheck to paycheck, Bitcoin’s wild swings felt dangerous.

People didn’t want to risk their wages or grocery money on a currency that could lose 20% in a week. The US dollar, even with inflation, was predictable. Bitcoin wasn’t a tool for the poor-it was a lottery ticket the government forced on them.

Technical Failures and Security Holes

The Chivo wallet wasn’t just unpopular-it was unreliable. It crashed on launch. Servers overloaded. Transactions failed. People waited hours to send $5 to a vendor. Then came the hacks. In early 2022, hackers stole over $1 million from user accounts. The government blamed third-party providers, but trust was already broken. By 2024, fewer than 8% of Salvadorans used the wallet regularly. Even the government admitted it wasn’t working.

Merchants didn’t want to install Bitcoin payment systems. They didn’t have the tech support. They didn’t have the time. And they didn’t see customers asking for it. The government’s push didn’t create demand-it created friction.

The IMF’s Ultimatum: $1.4 Billion or Drop Bitcoin

In January 2025, El Salvador’s government got a letter from the International Monetary Fund. The IMF offered a $1.4 billion loan to help stabilize the economy-but only if they changed the Bitcoin law. The IMF didn’t say Bitcoin was bad. They said mandatory adoption was risky. It made El Salvador’s financial system unpredictable. It scared off investors who worried about regulatory chaos.

On January 29, 2025, the Legislative Assembly voted 55-2 to amend the law. By May 1, Bitcoin was no longer required for payments. Taxes? Still paid in dollars. Wages? Still paid in dollars. The government stopped promoting the Chivo wallet. They even removed it from public sector apps. The word "currency" was erased from the law. Bitcoin was still legal tender-but it was no longer a tool of the state.

What Actually Changed? The New Reality

Today, Bitcoin in El Salvador is like a car with no gas. It’s still there. But no one’s driving it.

Businesses can accept it if they want. A few tech shops, crypto cafes, and tourist spots do. But 92% of Salvadorans say they’ve never used Bitcoin to buy anything. Only 20% of large companies accept it. Just 5% of tax payments are made in Bitcoin. The Chivo wallet still exists, but it’s mostly used to cash out Bitcoin into dollars.

Economist Rafael Lemus put it bluntly: "Bitcoin no longer has the strength of legal tender." And he’s right. The government didn’t fail because of technology. They failed because they tried to force adoption. People don’t adopt money because a law says so. They adopt it because it’s useful, stable, and trusted.

What Didn’t Change: The Bitcoin Reserve

Even after walking back the law, El Salvador didn’t sell its Bitcoin. In fact, they bought more. As of early 2025, the government holds over 6,100 Bitcoin-worth roughly $500 million. That’s up from the original 688 coins bought in 2021. The profit? Over $287 million.

They’re not using Bitcoin to pay for buses or bread. They’re using it like gold. A long-term store of value. A hedge against inflation. A bet that Bitcoin will rise over the next decade.

It’s a smart move, honestly. If you believe in Bitcoin as an asset, holding it makes sense. But trying to make it a currency? That’s a different game.

Why This Matters for the Rest of the World

El Salvador’s experiment was the first real test of a country adopting Bitcoin as money. And the lesson is clear: you can’t mandate trust. You can’t force adoption with bonuses or laws. People need to see Bitcoin as easier, safer, and more reliable than what they already use.

Other countries watched closely. Nigeria, Kenya, and Argentina all considered similar moves. But after El Salvador’s stumble, they paused. The IMF’s pressure sent a signal: central banks and global lenders don’t trust crypto as money. Not yet.

El Salvador didn’t fail because Bitcoin is flawed. They failed because they misunderstood how money works. Money isn’t a tech upgrade. It’s a social contract. And contracts need time to build-not laws to force.

What’s Next for El Salvador?

El Salvador isn’t abandoning crypto. They’re just changing their strategy.

In January 2025, they hosted the PLANB Forum-the biggest crypto conference in Central America. They’re building data centers. Offering tax breaks to crypto startups. Trying to become a hub for blockchain tech, not a national wallet.

They’ve stopped pushing Bitcoin as money. Now they’re pushing it as investment. As innovation. As a way to attract global tech talent.

It’s a quieter, smarter approach. And it might just work.