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El Salvador becomes first to use bitcoin as official currency

A network of cash dispensers will allow users to convert bitcoin into dollars free of commission, backed by a $150m government fund.  Taxes may be paid in the cryptocurrency and merchants must accept it alongside the US dollar, the national currency since 2001.

Millions of Salvadorans downloaded the government’s new digital wallet app on Tuesday which gives away £22 in bitcoin to every citizen.

The country depends heavily on money which citizens based abroad, often in the US, and the move to bitcoin is based on an expectation that more Salvadorans will begin sending money home using the cryptocurrency.

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But as the world watched closely the digital experiment clashed with the reality of the Central American nation. The government-backed bitcoin app is not available on various internet platforms including Apple and Huawei.

More than 1,000 protesters gathered outside the country’s supreme court,  burning a tire and setting off fireworks. Opinion polls show a clear majority against the idea.

Meanwhile, the value of bitcoin plummeted early on Tuesday morning with an 11% drop that wiped out some $400bn in market value, before recovering about half of that loss – an example of the volatility that worries many.

“When this move was first announced, it didn’t have nearly as big of an impact on price as some may have expected it might, possibly because El Salvador’s population is less than New York City’s, but also because the announcement was light on details and people were on the fence about how this was going to be implemented,” Leah Wald, CEO at Valkyrie Investments, told CNBC

Salvadorans also need internet access to use bitcoin, and only 45% of the country is connected.

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Analysts fear the adoption of bitcoin, whose transaction records are distributed across the internet, beyond the reach of national jurisdictions, could encourage money laundering. A cryptocurrency specialist who warned about the drawbacks, was detained briefly this week for “financial fraud”.

The country vowed to continue its bitcoin gambit even with opposition from the international financial community and own citizens.

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