A Year After El Salvador Admittedly Bitcoin As A Payment Tool, A Great Failure In Front Of The Eyes

President El Salvador, Nayib Bukele, does not want to admit the failure of Bitcoin. (photo: twitter @nayibbukele)

JAKARTA - A year after El Salvador adopted bitcoin as a legal tender, but until now the world's first cryptocurrency city area to be built in the middle of the forest is still in the form of dense forests.

President Nayib Bukele has promised that the "City of Bitcoin" will become a tax haven for crypto investors and miners equipped with airports, residential and commercial areas, and a central square designed to look like bitcoin symbols from the sky.

"Invest here and make all the money you want," Bukele said in front of hundreds of bitcoin fans in November 2021.

But the areas under the shadow of the Conchagua volcano in the east of the Central American country, no heavy machinery, construction workers, or raw materials have shown any progress in the construction of the city of bitcoin. As for many, the project has become a symbol of ignorance because bitcoin has fallen.

"This experiment is very risky, too risky for poor countries," said Oscar Picardo, director of the Institute of Science, Technology and Innovation at Francisco Gavidia's private university. "It has been seen that (bitcoin) is a very speculative and highly varied financial asset,".

Most of the problem is that the decline in the value of bitcoin and other cryptocurrencies has isolated investors.

When El Salvador, one of the poorest countries in Latin America, adopted bitcoin as legal tender on September 7, 2021, its cryptocurrency was close to $47,000.

A year later, its value was less than half and on Tuesday 6 September it was trading at 19.770 US dollars.

Bukele's government declined to comment on this but they stated that bitcoin holdings of 2,381 bitcoins were maintained and ensured that it was a long-term plan.

Menurut Pemerintah El Salvador kebijakan bitcoinnya telah menarik investasi, mengurangi komisi bank menjadi nol, meningkatkan pariwisata dan mempromosikan inklusi keuangan.

But price reductions have increased El Salvador's financial risks, making it difficult to find funds to pay $1.6 billion from state bonds due in 2023 and 2025.

The International Monetary Fund has asked El Salvador to reverse bitcoin's status as legal tender citing financial, economic and legal concerns; complicate deals with lenders.

The use of cryptocurrencies also failed, said experts.

Neither the presidency nor the ministry of finance will share figures about the use of bitcoin through the government's bitcoin digital wallet, Chivo.

But a survey by the National Economic Research Bureau (NBER), a US-based NGO, found that only 20% of Salvadorans downloading the Chivo app continued to use it after spending 30 US dollars the government provided in free credit to promote and use it.

The study shows most of Chivo's downloads took place in 2021, particularly in September, and almost no downloads have occurred so far in 2022.

In theory, developing countries like El Salvador are ideal candidates for cryptocurrency adoption due to continued dependence on cash and populations most of which do not have bank accounts.

However, according to a April report, bitcoins are not widely used as a medium of exchange because users don't understand it, they don't trust it, are not accepted by businesses, are highly volatile, and involve high costs.

Although Salvadoran law requires all companies to accept cryptocurrencies, only 20% did so. This is known from a survey interviewing 1,800 Salvadoran households.

The small watch shop Jesus Caceres in central San Salvador is one of the businesses that did it. Three signs read "We accept bitcoin," but the 47-year-old watchmaker has only made two sales with cryptocurrencies.

"One is for 3 US dollars and one is for 5 US dollars, the total is 8 US dollars. Since then, no one has approached me," he said.

The government also encourages Salvadorans working abroad to send money home via government wallets Chivo, or other private wallets, without collecting commissions. Known as remittances, the transfer from abroad represents 26% of Central American state's GDP, one of the highest percentages in the world.

But according to statistics from the central bank, between September 2021 and June 2022, the country received nearly $6.4 billion in remittances and less than 2% transferred by digital cryptocurrency wallets.

Like the use of bitcoin, the government shares some details about the "City of Bitcoin". But its future looks increasingly uncertain since the issuance of "Bitcoin Bond," which Bukele says will support urban development, has been postponed following the collapse of cryptocurrencies.

Residents of the city's site planned, between the Conchagua volcano and Fonseca Bay on the Pacific coast, feel the majority of the country's 6.5 million residents will not be liked.