Working Paper: NBER ID: w29968
Authors: Fernando E. Alvarez; David Argente; Diana Van Patten
Abstract: A currency’s essential feature is to be a medium of exchange. We leverage a quasi-natural experiment—El Salvador as the first country to make bitcoin legal tender—to study a cryptocurrency’s potential to be used in daily transactions. The government also launched and provided incentives to download and use a digital wallet named Chivo, which shares features with Central Bank Digital Currencies (CBDCs) and allows users to trade bitcoin and dollars. Were Chivo Wallet and bitcoin actually adopted after this “big push”? Conducting a representative face-to-face survey and relying on blockchain data to obtain all Chivo transactions, we document how usage of digital payments and bitcoin is low, concentrated, and has been decreasing over time. We find that privacy concerns are key barriers to adoption, which speaks to a policy debate on crypto and CBDCs that has had anonymity at its core. We also estimate the technology’s adoption cost and its network externalities.
Keywords: Bitcoin; Chivo wallet; El Salvador; Cryptocurrency; Digital payments
JEL Codes: E4; E41; E42
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Chivo wallet adoption (G50) | Bitcoin adoption (E42) |
| Government incentives (O31) | Chivo wallet adoption (G50) |
| Privacy concerns (K24) | Chivo wallet adoption (G50) |
| Chivo wallet adoption (G50) | Usage of Bitcoin for transactions (E42) |
| Government incentives (O31) | Usage of Bitcoin for transactions (E42) |
| Initial spike in downloads (C69) | Sustained Chivo wallet usage (E42) |
| Chivo wallet adoption (G50) | Low usage of digital payments (E42) |
| Bitcoin legal tender status (E42) | Bitcoin transactions (E42) |