This article is from es.cointelegraph.com and the original article can be read here
The adoption of Chivo in El Salvador is slow and there are several factors that influence this situation, as we have discussed in a previous article. After the adoption of bitcoin as legal tender in El Salvador, this electronic wallet was promoted by the government with the aim of allowing its citizens to pay with both bitcoin and dollars. According to the most recent study to date on the impact of bitcoin on the Salvadoran economy (published by the NBER), their data are not very encouraging. 40% of downloads occurred in September 2021, however this year there have been virtually no new downloads.
It is estimated that more than two thirds of Salvadorans are aware that Chivo Wallet exists. Almost 78% of those who know the application have tried to download it either on their own or with help. There are a number of reasons why people who knew about the app didn’t download it. The most important reason cited by the University of Chicago study is that users prefer to use cash. They were followed by trust issues, since the respondents did not trust the system or bitcoin itself. The fourth most mentioned reason was not having a telephone with Internet (only 64% of Salvadorans have a mobile with access to the network), followed by the technology being complicated. In sixth place, Salvadorans mentioned errors in the application.
As for bitcoin itself, the top reasons people don’t use it are, in order of relevance, that users: they do not understand it, they do not trust it, it is not accepted by companies, it is very volatile or carries high commissions.
The main reason to download the app is to use the $30 bonus offered by the government, but less than half of the users who were able to download Chivo continued to use it after spending the bonus: only 20% of adult citizens. The probability of downloading Chivo Wallet, conditioned to knowing its existence from a source other than family or friends, is increasing in the number of family and close friends who have downloaded the app.
Do Salvadoran citizens use this app to pay taxes or remittances?
According to the Bitcoin Law, bitcoin can be used to pay taxes in El Salvador. However, most Salvadorans do not use bitcoin to pay taxes through Chivo Wallet. In addition, in El Salvador, some households -especially those in the lowest quintile- receive more than 60% of their income from remittances (earnings that immigrants make to their countries of origin) that come from abroad. According to current data, Chivo is also not widely used to receive these remittances. This finding is in line with reports from the Central Reserve Bank of El Salvador, which find that only 1.6% of remittances were received through digital wallets in February 2022.
Among those who have downloaded the application, over 60% did not use Chivo Wallet after spending their $30 bonus. Also, most of the users who used Chivo after spending the $30 bonus do not use the app intensively. The average user does not report any ATM withdrawals or payments sent or received in bitcoin in any given month. The average number of transactions per person per day is between 1.3 and 1.4 in various countries. A private company involved in the development of Chivo indicates that there are only between 6 and 15 thousand transactions per day in the application, which is a small number in relation to the size of the adult population of El Salvador (approximately 4.3 million people) and relative to the fraction of the population that has downloaded the app and reported using it after spending the bonus. In addition, there is currently no evidence that the Chivo app is used to pay taxes or send remittances on any significant scale.
What role do companies play in the use of this app?
The study by the University of Chicago shows that, while almost all companies accept cash as a means of payment, only 20% of them accept bitcoin. Although the Bitcoin Law establishes that all economic agents must accept bitcoin as a payment method, this does not necessarily mean that all companies do so effectively. In line with the limited access to banking services in the country, the percentage of companies that accept credit or debit cards is only slightly above 25%. Among the companies that accept bitcoin, the majority began to accept it after the law was enacted and few adopted it later.
In addition to this, most companies that declare sales in bitcoin convert them into dollars; 71% of bitcoin sales are converted to dollars and then withdrawn as cash, 17% are converted to dollars and stored in the Chivo Wallet, and only 12% are stored as bitcoin within the Chivo app. Finally, an estimated 11% of businesses have increased prices since bitcoin became legal tender, suggesting that some businesses that accept bitcoin may be passing on additional cryptocurrency-related costs to customers ( for example, volatility).
Do commissions matter?
Chivo Wallet allows its users to withdraw money from Chivo ATMs and convert bitcoin into dollars without paying a commission. However, aside from Chivo Wallet, most providers charge significant fees for these services. According to the calculations of the aforementioned study, the maximum willingness to pay to withdraw 100 dollars at a Chivo ATM is 3.3 dollars on average. This amount is less than half the average Bitcoin ATM withdrawal fee outside of El Salvador. The median of the respondents would have a willingness to pay of only 1 dollar. This finding suggests that Chivo users will not participate in cash withdrawals if faced with withdrawal fees closer to those required by other systems.
There is a lot of disparity in terms of the conversion price that must be paid and the one that users would be willing to pay. The willingness to convert bitcoin into dollars is $2.9 on average, however, the figure that respondents would be willing to pay on average is only $0.05.
Usually, It could be concluded that bitcoin is not being widely used as a medium of exchange, despite its growing popularity in Latin America. The latter is maintained despite the great impetus exerted by the government, which decided to give bitcoin legal tender status through the Bitcoin Law, in addition to offering the $30 bonus, discounts on gasoline and the absence of transaction or withdrawal fees; and despite the incentive to use contactless payment methods amid the COVID-19 pandemic.