Despite promising to revolutionize finance for many years, Bitcoin and other cryptocurrencies are still largely floundering around for a meaningful use case. For boosters of the technology, the decision of El Salvador to adopt Bitcoin as legal tender in 2021 was a sign that things were changing.
The country also launched the Chivo Wallet around the same time. This aimed to provide many of the same benefits of a digital currency provided by a central bank, such as the ability to pay for goods and make deposits and withdrawals in both dollars and Bitcoin.
An informative experience
Given its pioneering stance, there has obviously been considerable interest in the experience in El Salvador. They haven’t been particularly forthcoming with information about the experiment to date. As a result, a recent study from Yale bypassed the government entirely and went directly to the El Salvadorian people to ask about their experience with Bitcoin since 2021.
The researchers reveal that despite the fanfare, Bitcoin isn’t really used a great deal by locals, despite a wide range of incentives that were put in place to encourage its use. They believe this underlines the challenges inherent in trying to encourage people to adopt new ways of paying for things, even if doing so might encourage financial inclusion.
“This is as good as it gets for an experiment” the researchers explain. “It was a beautiful chance to study theories that we’ve never had a chance to test.”
Lack of information
The researchers explain that most of the information available about the project comes from the tweets made by the president of the country. This paucity of official information forced them to go directly to the source and ask citizens how they felt about the new currency.
In February 2022, they did a survey, in partnership with the research firm CID Gallup, with 1,800 households in the country. They wanted to know what people think about and how much they use Chivo Wallet. They also got another company to check the data on the blockchain to make sure everything was right.
The results showed that a lot of people knew about Chivo Wallet – almost 68 percent of those who could use it. And out of those, 78 percent tried to download it. But after that, not many kept using it. Even with government perks like a $30 Bitcoin bonus, gas discounts, and waived fees, almost 20% of the people who downloaded Chivo Wallet didn’t use their bonus by the time of the survey. And most of the people who did use the bonus didn’t stick around to keep using the app.
Lack of anonymity
A central sticking point proved to be the perceived lack of anonymity in both Bitcoin and the app, which undermined people’s trust in them. This lack of trust underscored figures showing that despite 20% of respondents being aware of the app, they didn’t go near it. They cited a lack of anonymity as the factor.
This was surprising as the researchers had expected the volatility and risk associated with cryptocurrencies to be a bigger factor. The lack of trust meant, however, that citizens weren’t even using Chivo Wallet for dollar-based transactions.
The researchers believe these are crucial findings for any other policymakers looking to introduce digital currencies. They believe any such efforts should ensure that the government keeps a robust record of users and transactions to ensure people trust the system.
“The issues of trust and privacy are going to be key,” the researchers explain. “If a lack of trust leads to a lack of adoption, that undermines the network effects that make digital technologies more useful. That’s something any government should keep in mind.”
Minimal usage
The authors checked the blockchain data, which is like a digital record of all Bitcoin transactions, to verify the survey findings. This confirmed what they found in their survey. Some wallets, like Chivo Wallet, don’t confirm their transactions on the blockchain.
However, the authors could still see specific transactions, like Bitcoin transfers between Chivo Wallet and other crypto wallets. The data from the blockchain matched up with what the survey showed: there were a lot of transactions when the country started using Bitcoin, but they dropped a lot after that.
“The promise of financial inclusion can be fulfilled if we figure out a way to provide technologies to people in a way that they can actually adopt them,” they conclude.
