A Country Makes History
In 2021, El Salvador became the first country to make Bitcoin legal tender. The experiment lasted less than four years before the government reversed course.
On June 5, 2021, President Nayib Bukele announced the plan at the Bitcoin Conference in Miami. Four days later, the Salvadoran legislature voted 62 to 19 in favor of the Bitcoin Law.
On September 7, 2021, the law took effect. Bitcoin gained the same legal status as the US dollar, El Salvador’s existing currency.
El Salvador is a small Central American country of about 6.5 million people. Roughly 70% of its population had no bank account. Money sent home by workers abroad made up about 20% of the economy. Bukele argued that Bitcoin could bank the unbanked and cut fees on those transfers.
The Experiment
The government launched the Chivo wallet, a state-built app for sending and receiving Bitcoin. Every citizen who signed up received $30 in free Bitcoin. For a country where the minimum wage was about $365 a month, that was a real incentive.
About half the population downloaded Chivo in the first few months. The numbers were misleading. A study by the National Bureau of Economic Research found that 61% of users withdrew the bonus and never opened the app again. Only about 9% kept using it for Bitcoin transactions.
The wallet had serious flaws. Its identity verification system was so weak that fraudsters created hundreds of thousands of fake accounts. An estimated 400,000 bogus profiles claimed the $30 bonus, costing taxpayers around $12 million.
The remittance promise never materialized. Bitcoin wallets captured about 4.5% of money transfers in September 2021. By October 2022, that share fell to 1.5%.
On launch day, thousands of protesters marched in San Salvador. They set tires on fire and torched a Bitcoin ATM. Polls showed that 68% of Salvadorans disagreed with the Bitcoin Law.
The protests targeted the forced acceptance, not Bitcoin itself. People objected to the lack of transparency and a payment system that did not work. Only about 14% of merchants ever processed a single Bitcoin transaction, despite a legal requirement to accept it.
The Government Buys Bitcoin
While public adoption struggled, Bukele pursued a separate strategy. He began buying Bitcoin with public funds.
Between September 2021 and January 2022, the government spent about $85 million on Bitcoin. By mid-2022, El Salvador held 2,381 BTC at an average price of roughly $43,000. Then Bitcoin’s price crashed below $20,000.
Bukele did not sell. He bought more. In November 2022, he announced daily Bitcoin purchases. One coin every day.
By early 2026, the government held over 7,500 BTC. The total investment was roughly $300 million. As Bitcoin’s price recovered, unrealized gains exceeded $400 million. The strategy that drew widespread mockery in 2022 turned profitable.
The Reversal
The International Monetary Fund warned repeatedly that the Bitcoin Law posed risks to financial stability. El Salvador needed IMF loans to manage its debt.
In December 2024, the two sides reached an agreement for a $1.4 billion IMF loan, part of a broader $3.5 billion package. The conditions were clear: El Salvador had to roll back its Bitcoin experiment.
In January 2025, the legislature amended the Bitcoin Law by a vote of 55 to 2. Businesses no longer had to accept Bitcoin. The government could no longer collect taxes in Bitcoin.
The Chivo wallet would be wound down. Bitcoin acceptance became entirely voluntary.
The IMF found that legal tender status had “not led to progress in financial inclusion.” The share of Salvadorans using Bitcoin fell from 25.7% in 2021 to 8.1% in 2024.
Despite the reversal, Bukele continued buying Bitcoin. He stated publicly that purchases would not stop.
What It Proved
El Salvador’s story is not a simple success or failure. It revealed how Bitcoin adoption works and how it does not.
Top-down adoption struggled. Making Bitcoin legal tender did not create real demand. Most citizens saw no reason to switch from dollars. Forcing merchants to accept a currency they did not understand created resentment, not adoption.
The investment bet paid off. Whatever the problems with the legal tender experiment, the government’s Bitcoin purchases generated significant returns. El Salvador bought when others mocked and held when others panicked.
The lesson is that Bitcoin adoption cannot be forced from the top. It grows from the ground up, from people solving real problems with real tools. Before the Bitcoin Law, a grassroots community project in El Zonte had already proved this.
El Salvador’s experiment changed the global conversation. It showed that a nation-state could hold Bitcoin on its balance sheet. It also showed that mandating adoption does not work. Both lessons matter.
Keep Reading
- Understand the problems Bitcoin solves in Why Bitcoin Matters
- Learn the basics in What is Bitcoin?
- See how self-custody gives individuals control over their money