Bitcoin’s first week in El Salvador: app issues and regulatory uncertainty

For all the excitement about Bitcoin in El Salvador, the first week was plagued by app errors, vague regulations and a lack of public education about cryptocurrencies and blockchain technologies.

After President Nayib Bukele announced plans via live stream at the Bitcoin Conference 2021 in June to introduce Bitcoin as legal tender, the law was passed days later. This started a three-month period for companies to abide by the rules until the law came into effect on September 7th.

During this time, the government rushed to roll out the Chivo wallet app, launched it just before the Bitcoin law came into effect, and is still struggling with service issues. The President and Congress also added a new article to the Bitcoin Act stating that individuals and companies without “access to the technology that enable them to transact with Bitcoin” are excluded from the obligation to accept but unspecified how to apply for such an exemption.

Politics and misinformation cloud legitimate concerns

Despite all the hiccups, Nolvia Serrano, the San Salvador-based chief marketing officer of fintech startup BlockBank, says reports of widespread protests against the adoption of Bitcoin are exaggerated.

“I’m not saying that everyone wants it. I am absolutely sure that there are a lot of people who don’t want Bitcoin, ”she said. “But [people outside El Salvador] miss that this is political. The protests were more about the president trying to have two terms in power. So there are all these mechanics and dynamics in the country that explain what is really going on. “

In addition, she said, legitimate concerns are drowned out by Bukele’s political rivals, who themselves do not have a solid understanding of how Bitcoin works.

“In my opinion, there are so many concerns that are justified – the volatility of Bitcoin, for example. But there is other information that has been shared by the opposition that is incorrect, ”said Serrano. “I listened to the manager [Leonor Selva] of the Association of Private Enterprises in El Salvador, and they compared Bitcoin to holding a piece of paper that said it was $ 5, which is absolutely not the case. “

Because of this, one of their most pressing concerns about Bitcoin has been the lack of public education. Working at a fintech company means being well versed in cryptocurrencies and understanding the risks involved. However, she fears that the unbanked Salvadoran population, which is estimated to be over 70%, has not received much guidance.

The hands-on approach taken by the founders of Bitcoin Beach, while admirable, was difficult to scale.

“On September 11th, when the Bitcoin was celebrated, they came. They didn’t even have parties or anything, ”said Serrano. “They were just helping all of the people who were trying to download their wallets.”

Chivo app accessibility and privacy concerns

Even with help, signing up for the Chivo wallet was a struggle.

Fernando Argumedo, a San Salvador-based attorney with Central Law, practices corporate law. He mainly focuses on intellectual property, technology, and data protection.

He couldn’t download the app on either of his phones or his tablet. Even if he could, Argumedo said one of his main complaints about Chivo was its privacy policy. By using the app, users consent to their data being passed on “to other institutions or affiliated companies, as far as legally permissible”.

This kind of vague disclaimer has made him and others pause, mainly because there is no legal clarity about what can be shared or with whom.

Argumedo said there was a Congressional-approved privacy law that Bukele rejected earlier this year. But while Bukele has been in office for two years, the new assembly, which is now politically linked to his party, took office in March. And so far there is no indication that the new legislature will update the data protection act and submit it again to the president for approval.

“In light of this, we don’t have a specific act or regulation for you to understand how your data is being treated,” said Argumedo. “So that’s a special concern for people who are more concerned about their data and privacy.”

There are alternatives to chivo. Jack Maller’s Strike, once considered the heir to the government sponsored wallet, is among them.

Strike is a viable option as it started operating in El Salvador before the Bitcoin law went into effect. The government has issued guidelines on Bitcoin compliance for existing apps and financial institutions. It is not clear to newcomers how to enter the market.

“For new companies that want to offer new services related to Bitcoin,” said Argumedo, “these rules have yet to be published.”

Another complaint about Chivo was the fact that it is structured like a private company but is publicly funded. There was no public contractor process soliciting bids from companies. And so far there doesn’t seem to be a government official responsible for it.

Argumedo said that companies wanting to use the app have had problems creating accounts. The app indicates that business accounts should be created by a legal representative of a company. That becomes an obstacle when a company’s legal department is based in another country, he said.

“These are people who have a residence card, they have a passport, but they can’t create an account because they don’t have a Salvadoran unique identifier,” he said, “so that’s another problem.”

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