A survey of El Salvador's bitcoin adoption

On December 22, a group of researchers from the US had a paper published in Science in which they reported the results of a survey of 1,800 households in El Salvador over its members’ adoption, or not, of bitcoin as currency.

In September 2021, the government of El Salvador president Nayib Bukele passed a ‘Bitcoin Law’ through which it made the cryptocurrency legal tender. El Salvador is a country of 6.3 million people, many poor and without access to bank accounts, and Bukele pushed bitcoins as a way to circumvent these issues by allowing anyone with a phone with an internet connection to access a central-bank-backed cryptocurrency wallet and trading the virtual coins. Yet even at the time, adoption was muted by concerns over bitcoins’ extreme volatility.

In the new study, the researchers’ survey spotlighted the following issues, particularly that the only demographic that seemed eager to adopt the use of bitcoins as currency was “young, educated men with bank accounts”:

Privacy and transparency concerns appear to be key barriers to adoption; unexpectedly, these are the two concerns that decentralized currencies such as crypto aim to address. … we document that this payment technology involves a large initial adoption cost, has benefits that significantly increase as more people use it …, and faces resistance from firms in terms of its adoption. … Moreover, our survey work using a representative sample sheds light on how it is the already wealthy and banked who use crypto, which stands in stark contrast with recurrent hypotheses claiming that the use of crypto may help the poor and unbanked the most.

Bitcoin isn’t private. Its supporters claimed it was because the bitcoin system could evade surveillance by banks, but law enforcement authorities simply switched to other checks-and-balances governments have in place to track, monitor, and – if required – apprehend bitcoin users, with help from network scientists and forensic accountants.

The last line is also reminiscent of several claims advanced by bitcoin supporters – rather than well-thought-out “hypotheses” advanced by scholars – in the late 2010s about the benefits the use of cryptocurrencies could bring to the Global South. The favour the cryptocurrency enjoyed among these people was almost sans exception rooted in its technological ‘merits’ (such as they are). There wasn’t, and still isn’t in many cases, any acknowledgment of the social institutions and rituals that influence public trust in a currency – and the story of El Salvador’s policy is a good example of that. The paper’s authors continue:

There is substantial heterogeneity across demographic groups in the likelihood of adopting and using bitcoin as a means of payment. The reasons that young, educated men are more likely to use bitcoin for transactions remain an open question. One hypothesis is that this group has higher financial literacy. We found that, even conditional on access to financial services and education, young men were still more likely to use bitcoin. However, financial literacy encompasses several other areas of knowledge that are not captured by these controls. An alternative hypothesis is that young, educated men have a higher propensity to adopt new technologies in general. The literature on payment methods has documented that young individuals have a greater propensity to adopt means of payment beyond cash, such as cards (87). Nevertheless, further research is necessary to causally identify the factors contributing to the observed heterogeneity across demographic groups.

India and El Salvador are very different except, by virtue of being part of the Global South, they’re both good teachers. El Salvador is teaching us that something simply being easier to use won’t guarantee its adoption if people also don’t trust it. India has taught me that awareness of one’s own financial illiteracy is as important as financial literacy, among other things. I’ve met many people who won’t invest in something not because they understand it – they might – but because they don’t know enough about how they can be defrauded of their investment. And if they don’t, they simply assume they will lose their money at some point. It’s the way things have been, especially among the erstwhile middle class, for many decades.

This is probably one of several barriers. Another is complementarity (e.g. “benefits that significantly increase as more people use it”), which implies the financial instrument must be convenient in a variety of sectors and settings, which implies it needs to be better than cash, which is difficult.