MSTR Cat

Blockchain/Level VII · Evolution/7.3 Booms, busts and institutions/Lesson 6

Nation-state adoption: El Salvador

The first sovereign to put a key in the treasury, and the amendment that followed

MaterialsA copy of Decreto 57 (Ley Bitcoin) or its English translationAccess to a block explorer with address search functionalityThe NBER working paper by Alvarez, Argente, and Van Patten (2022)

Wonder

  1. What changes when a government mandates acceptance of an asset whose supply is fixed by code rather than decree?
  2. Why did a $30 sign-up bonus drive adoption that surveys later showed evaporated once the incentive ended?
  3. How did international lending pressure reshape El Salvador’s bitcoin law?

Explore

  1. El Salvador’s Bitcoin Law, Decreto 57, passed on 9 June 2021 and took effect on 7 September 2021. It designated bitcoin as legal tender alongside the US dollar, requiring merchants to accept it for payments. President Nayib Bukele announced the plan on 5 June 2021, framing it as a tool for financial inclusion and remittance efficiency.
  2. The government launched the Chivo wallet to facilitate adoption, offering a $30 sign-up bonus to new users who verified their identity. This subsidy drove rapid initial downloads, but usage patterns shifted quickly once the bonus expired. The NBER study by Alvarez, Argente, and Van Patten (2022) found that everyday transaction volume remained limited after the incentive period, with most users abandoning the app after spending the bonus. The wallet functioned as a custodial interface, managing keys on behalf of users.
  3. El Salvador began purchasing bitcoin for its national treasury, and from November 2022 announced a program of buying one bitcoin a day (the IMF later questioned whether some reported additions were purchases). This move distinguished the policy from mere acceptance; the state itself became a holder of the asset. Proponents argued this hedged against dollar devaluation over long horizons, given bitcoin’s fixed supply cap of 21 million coins. Critics noted the volatility risk for a small economy dependent on remittances and tourism, where price swings could destabilize fiscal planning.
  4. The International Monetary Fund repeatedly urged El Salvador to reverse the mandatory acceptance requirement, citing risks to financial stability and debt sustainability. In December 2024, as part of a $1.4 billion Extended Fund Facility arrangement, El Salvador agreed to amend the law. The amendment, passed in January 2025, made merchant acceptance voluntary rather than compulsory. Bitcoin lost its legal-tender status, taxes could no longer be paid in it, and the government began winding down the Chivo wallet.
  5. The Central African Republic (CAR) followed a similar path in April 2022, adopting bitcoin as legal tender under President Faustin-Archange Touadéra. The move faced immediate logistical challenges due to limited internet infrastructure and banking access. In 2023, CAR reversed course, repealing the law and returning to the CFA franc as its sole official currency. Both cases illustrate the tension between sovereign policy ambitions and the practical constraints of integrating a volatile digital asset into national monetary systems.
  6. To examine the technical reality of state adoption, open a block explorer such as mempool.space and search for El Salvador’s known treasury addresses. Observe that these are ordinary addresses, indistinguishable from any other except through the government’s own disclosures. Note that the protocol does not recognize ‘national’ coins; all 21 million BTC are identical units on the ledger. The legal status is a layer of fiat interpretation imposed on top of a permissionless network.

Key facts

  • El Salvador’s Bitcoin Law (Decreto 57) took effect on 7 September 2021, making bitcoin legal tender alongside the US dollar.
  • The Chivo wallet offered a $30 sign-up bonus to drive adoption; surveys indicated limited sustained usage after the incentive ended.
  • As part of a December 2024 IMF agreement, El Salvador amended its law in January 2025 to make merchant acceptance voluntary.
  • The Central African Republic adopted bitcoin as legal tender in April 2022 and reversed the decision in 2023.
  • El Salvador purchased bitcoin for its national treasury beginning in 2021, making it a direct holder of the asset.
  • Bitcoin’s fixed supply cap of 21 million coins is enforced by protocol rules, independent of any government decree.

Exercise nine, six, three, one

9CollectList 9 sovereign states that have adopted, piloted, or banned bitcoin or stablecoins as legal tender since 2014. Note the year and the specific mechanism (mandatory acceptance, voluntary use, or prohibition).
6ClusterGroup the 9 into 6 by their primary economic motivation: remittance cost reduction, inflation hedging, financial inclusion, technological experimentation, political signaling, or capital control.
3DistillReduce the 6 to 3 factors that determine whether a sovereign adoption persists beyond the initial announcement.
1CrystallizeWrite 1 sentence on what happens when a decentralized protocol meets centralized legislative power.

Fact check

Dates, figures and claims checked against the published sources listed below.

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