El Salvador's Bitcoin Experiment: A Mixed Bag After Five Years

El Salvador's Bitcoin experiment has reached its fifth anniversary, and it's clear that the results are mixed. The country became the first to adopt Bitcoin as legal tender in June 2021, with President Nayib Bukele pitching it as a way to bank the unbanked, slash remittance costs, and attract investment.

However, according to Dr. Tobias Boos, a senior scientist at the University of Vienna, 'there is little doubt that the project was a failure if we take seriously the reasons Bukele gave for its adoption.' Boos notes that foreign direct investment in this sector didn't increase, it didn't effectively bank the unbanked, and it's not widely used for remittances.

The research found that the Salvadorans who adopted Bitcoin tended to be young, male, urban, more highly educated, and already banked. This contradicts Bukele's ambition of mass adoption by citizens, with just 35.9% of people over 15 holding a bank account in 2021.

The government's Chivo Bitcoin wallet could transfer funds to bank accounts but didn't remove the underlying barriers preventing unbanked Salvadorans from accessing the financial system. Remittances accounted for around 24% of El Salvador's GDP, with most coming from the US, where USD is also used as currency.

The experiment did, however, thrust El Salvador into the center of the global Bitcoin movement, and turned nation-state adoption from a theoretical possibility into a living reality. The IMF eventually pulled the plug on some of Bukele's plans, including Volcano Bonds and Bitcoin City, but this didn't completely stop the project.