The Rise and Fall of Bitcoin as Legal Tender: An Analysis of El Salvador’s Experiment

Abstract

El Salvador's adoption of Bitcoin as legal tender in 2021 represented a bold but ultimately flawed experiment in national cryptocurrency integration.This paper critically examines the key challenges that led to the policy's failure, including public rejection, technological deficiencies, market volatility, and international financial pressure.Despite government incentives, Bitcoin adoption remained minimal, with security issues in the Chivo wallet further eroding trust.The collapse of cryptocurrency markets in 2022 exposed the country's economic vulnerability, forcing El Salvador to scale back its Bitcoin strategy under IMF loan conditions.The findings highlight critical lessons for other nations considering similar policies, emphasizing the need for phased implementation, robust financial infrastructure, and regulatory clarity.Future research should explore alternative digital currency models, particularly Central Bank Digital Currencies (CBDCs), and the socio-economic implications of large-scale cryptocurrency adoption.