According to , the National Bureau of Economic Research published last month a paper showing that El Salvador’s national Bitcoin wallet, Chivo, was a failure. This study is the first non-governmental effort to quantify the country’s success with cryptocurrency.
The nonprofit was based in Cambridge, Massachusetts and surveyed 1,800 households in urban areas as well as rural areas. The unbanked are where Chivo might have had some unexpected success. Researchers found that Chivo Wallet users who use it continue to transfer El Salvador’s official currency. This is similar to using any digital wallet or bank. Respondents told researchers that the app is used as a debit card to transfer dollars. 20% of Chivo users said they spend less cash.
Rest of World Fernando Alvarez, an economist from the University of Chicago, said that there was no example of a currency being introduced with such strong incentives but still failed.
Chivo was launched in September 2021 when El Salvador became the first country to legalize Bitcoin. The app stores and exchanges Bitcoin and saves Salvadorans on $6 billion that is sent from abroad each year. It also boosts the economy, he stated.
However, things have not gone according to plan. Chivo’s launch was hampered by security and functionality issues. The National Bureau of Economic Research discovered that Chivo was downloaded by around half of Salvadorans. With 40% of those downloads occurring in September 2021, 61% of those who tried it have stopped using it. In February 2022, only 1.6% of all remittances were made in bitcoins via digital wallets, according to El Salvador’s Central Bank.
Many people who live along the Pacific coast’s tourist hot spots, where Bitcoin usage is high, have switched to crypto wallets such as the privately-developed Bitcoin Beach.
Carolina Reyes, a snack seller in El Palmarcito’s surf village, said, “Don’t even speak to me about Chivo.” “It’s not safe, so I won’t go near it.” She claimed that she was one of over 1,000 people who signed up for the app last September, only to discover that their identity had been stolen to get the $30 bonus.
“There has never been an experiment in which a currency was introduced with such strong incentives, and it failed to succeed.”
The Chivo downloads numbers in 2022 were negligible, which suggests that the push is dead. Some people who are still using the application for non-Bitcoin transactions use it. According to the survey, the median user is not active enough to send or receive any Bitcoin payments per month.
Alvarez stated that Chivo was adopted widely but that most people abandoned it after receiving the bonus. This suggests that Bitcoin, in its current form, ‘isn’t such an effective method of payment. The study found that only a small percentage of transactions made by Chivo are for key or commercial purposes. Alvarez stated that the average user didn’t see any incentive to use Bitcoin instead of dollars.
According to Oscar Salguero (a San Salvador-based software engineer and cryptocurrency enthusiast), the app may have served more as a rudimentary digital pocket than an innovative technology that could transform El Salvador into a regional hub for tech. He said that Chivo is a very expensive Square or Cash App clone, used by a small and narrow user base. Rest of World
However, dollars held in Chivo are not as secure as they seem. El Faro reported on April 27th that Chivo users were not actually keeping U.S. Dollars in their wallets but instead stable-dollar coins. These coins could be backed either by the Salvadoran government, or a private company. Experts informed El Faro it was concerning that Chivo could be used as a bank without following the financial regulations.
“This is deception by the government because it has not told citizens [that digital tokens are instead of Bitcoin or dollars],” Carlos Acevedo, an economist and former president of El Salvador’s Central Reserve Bank, stated to Rest of World. ‘ Moreover, if the Chivo Wallet is used extensively and people wish to withdraw their money at some point, it may turn out that this money doesn’t exist.