El Salvador’s Cryptocurrency Experiment: Unveiling the Reasons Behind Limited Adoption

Case study of cryptocurrency suggests many do not trust its transparency and privacy
Image: Bitcoinist

Case study of cryptocurrency suggests many do not trust its transparency and privacy

A team of economists and financial analysts, including two from Yale University and one from the University of Chicago, recently conducted a comprehensive study on a nationwide experiment involving cryptocurrency. The case study focused on El Salvador, where the government made efforts to promote cryptocurrency as a widely accepted form of currency. The findings of this research were published in the journal Science by Fernando Alvarez, David Argente, and Diana Van Patten.

In the last 50 years, there has been growing awareness that traditional banks and the broader banking system may not always be favorable to individuals with lower economic standing. In response, various alternatives, such as cryptocurrency, have emerged. Cryptocurrency, touted as a currency for the financially underserved due to its anonymity, allows users to conduct transactions without revealing personal information or credit history. However, this very feature has raised concerns about its potential misuse by criminals and terrorist organizations for untraceable financial transactions.

The researchers aimed to understand how ordinary people perceive cryptocurrency systems and whether they are open to adopting them. To achieve this, they conducted an in-depth case study on the introduction of Bitcoin in El Salvador.

Adoption of Chivo Wallet in El Salvador. (A) Dynamics of Chivo Wallet downloads and (B) regional variations in adoption across El Salvadoran regions by shares of unbanked. (C and D) Summary of the survey’s results on adoption by individuals and firms, respectively. Credit: Science (2023). DOI: 10.1126/science.add2844

In 2021, the government of El Salvador officially recognized Bitcoin as legal tender nationwide, hoping to enhance its credibility. As part of this initiative, citizens were permitted to pay taxes using Bitcoin, and businesses across the country were mandated to accept it as a payment method, including debt collectors. To facilitate the use of the new currency system, the government introduced the Chivo Wallet, a mobile app enabling the exchange of Bitcoin and U.S. dollars. Notably, the use of the U.S. dollar as the official currency was not discontinued.

To gauge the acceptance and adoption of the new currency system, the researchers conducted face-to-face interviews with residents of 1,800 households across the country. Additionally, they had access to transaction data from the Chivo Wallet.

The research team discovered that the use of Bitcoin in El Salvador has been consistently low and has declined since the government’s pro-cryptocurrency campaign began. The primary reason cited for the reluctance to embrace the new currency system was concerns related to transparency and privacy—ordinary citizens lacked trust in the operators of the cryptocurrency system. Consequently, the majority continued to prefer using U.S. cash. Interestingly, the study also revealed that the affluent population in El Salvador, who continued using the traditional banking system, constituted the majority of Bitcoin users in the country.

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Source(s): Tech Xplore

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