El Salvador’s Bitcoin-as-Currency Experiment Ends 2021 on a Low Note

Without a fairly sharp jump, bitcoin is going to end the year below the $51,000 level at which El Salvador bought its first 200 BTC, a somber note for the largest cryptocurrency’s turn as an official national currency.

But then, El Salvador’s President Nayib Bukele hasn’t had much luck with his experiment. The initial announcement that the country was going to make bitcoin El Salvador’s second legal tender, alongside the U.S. dollar, was met with dismay by economists, growling concern by international financial organizations — notably the International Monetary Fund  — and protests by citizens unhappy with the idea of so volatile a currency.

President Bukele hasn’t wavered, however, buying more bitcoins during its first dip and touting the program in the face of growing discontent. Much of that discontent can be put down to a lack of transparency in the program, which was approved almost “without any discussion about the risks of implementing a cryptoasset with high volatility as legal tender,” according to ElSalvador.com. A late November survey found that just 4.9% of the population preferred the cryptocurrency

Notably, the law adding not just a new currency but a new type of currency as legal tender was just 16 articles long, and has been widely “characterized as too brief and not making clear many of the aspects that, to this day, Salvadorans continue to not understand,” the new outlet said on Dec. 23.

Among the problems are the $300 million price tag, which includes approval for the purchase of 1,370 BTC, depositing $30 worth of BTC in every citizen’s Chivo Wallet — created for the program — and a $150 million trust with no public details released about how or by whom it is run, ElSalvador.com said.

On Nov. 20, President Bukele announced plans to build a geothermal-powered “Bitcoin City” with funds raised from a $1 billion bitcoin-backed bond issue.

See also: El Salvador Plans to Build Tax-Free Bitcoin City

And on Dec. 23, he declared in a tweet that the world was watching as what international organizations called “The #Bitcoin Experiment” in El Salvador would show “how mass adoption changes a country’s economy,” according to Diario El Salvador.

Read more: Bitcoin, Stablecoins Will Transform El Salvador’s Economy, Stellar Foundation CEO Says

“If it’s for the good, it’s game over for FIAT,” President Bukele said. “El Salvador is the spark that ignites the real revolution.”

Holes in Chivo Wallets

The biggest problem the experiment is facing is the Chivo Wallet, a custom-built digital wallet that does not have open-source code that can be scrutinized for holes. It does, however, appear to have holes, as the number of complaints by citizens about funds disappearing from their wallets keeps growing, ElSalvadorgram noted.

And it’s not just the unspent $30 sign-up bonuses Chivo Wallet users are reporting stolen, the news outlet said. It quoted one user complaining that $16,000 had disappeared, while another said $3,921 had disappeared in 13 unauthorized transactions.

Even more frustrating, they said, was the lack of any action by Chivo’s tech support personnel.

See more: El Salvador’s Chivo Wallet Buffeted by Sanction Threat, Identity Theft and Privacy Problems

This brought a vigorous I-told-you-so from Steve Hanke, a professor of applied economics at Johns Hopkins University and currency expert who is director of the Troubled Currencies Project at the Cato Institute, a libertarian think tank.

In a Dec. 28 tweet, Hanke pointed to continuing reports that the Chivo Wallet “is plagued by disfunction” amid accounts of disappearing funds.

“Just as I said from the beginning, the Chivo wallets would make ELSL the #1 global target for hackers.”

While that may be laying it on a bit thick given $30 targets, Hanke said earlier in the year that making Bitcoin a legal tender alongside the U.S. dollar was ill-fated, according to ElSalvador.com.

The biggest threat, he said, would come from “dark forces” that target El Salvador not for its bitcoin, but for the ability to change bitcoins for dollars. “They will come like vacuum cleaners to take away all the dollars that El Salvador has in a short time,” he added.