Betting on Bitcoin

Chaos reigned on the streets of San Salvador.

More than a thousand people gathered outside the Supreme Court. The sound of yelling and fireworks filled the air. Someone started a fire. Soon, armed police entered the fray.

Around the world, politicians watched on in fascination. This was not a fervent election rally or even an out of control football riot. Instead, the cause of the protests was much more unusual.

On Tuesday, El Salvador became the first country in the world to make the cryptocurrencyA digital currency in which transactions are verified and records maintained by a decentralised system using cryptography, rather than by a centralised authority. Bitcoin a legal currency. From now on, businesses must accept the digital coins as payment. 

It was not a smooth start. The government's new digital wallet app was taken offline due to technical difficulties. Meanwhile, the global price of Bitcoin slumped by an incredible 17%. 

Indeed, El Salvador is an unlikely location for the beginning of the cryptocurrency revolution. The mountainous state is one of Central America's poorest countries. Only a third of the population have access to the internet. One survey found that less than 5% of Salvadorans even understand what Bitcoin is.

But away from the protests, some people were quietly celebrating. By mid afternoon, digital enthusiasts were using their Bitcoin wallets to pay for burgers and coffees in international chains like McDonald's and Starbucks.

And the initial setbacks have not dampened the excitement of El Salvador's president, Nayib Bukele. 

Bukele insists that Bitcoin will promote foreign investments, make banking more accessible and cut the costs for expatriates sending money home. The president even hopes to use energy from volcanoes to mine the cryptocurrency. 

Some believe that dozens of nations will soon follow in El Salvador's footsteps. "It's hard to describe the joy it makes me feel that our country is the first domino to fall in this inevitable transition," said Bitcoin enthusiast Gerson Martinez. "What a time to be a Salvadoran."

But financial experts say the decision to adopt Bitcoin is a huge gamble. The cryptocurrency is notoriously volatile. In the last year alone, the price of a single Bitcoin has risen to a high of £46,000 and fallen to a low of £21,000. Now the IMFThe international Monetary Fund. Its main function has been to manage debt difficulties in many countries, often enforcing strict financial discipline in exchange for loans to governments. has issued a dire warning, saying that Bitcoin could threaten the stability of El Salvador's entire economy. 

"I liken this initiative to jumping from a plane with no parachute," declared one economist this week.

Meanwhile, many Salvadorans are suspicious. Critics claim the move is a distraction from a recent court ruling allowing Bukele to run for an unprecedented second term. Some even fear that digital wallets are a ruse by the government to steal their savings. 

It is a fear they share with British journalist Peter Hitchens. "A cashless society may sound desirable to those tidy, glinting people who think that all change is progress," he wrote.

"But to me it sounds like a big step towards a Brave New WorldA phrase from Shakespeare's play The Tempest which was used as the title of a dystopian novel by Aldous Huxley. of surveillance, dependency and a total lack of privacy or real control over your own life."

Is digital money a good idea?

Of course, say some. Digital payments may still be considered risky in many Western countries, but they are taking off in the developing world. When local currencies are unstable, digital money provides welcome security for people sending and receiving payments. And in the 21st Century, freedom of choice is key. 

Definitely not, say others. Peter Hitchens is right. Digital money is brilliant only for thieves and spies. Left unchecked, it could destroy civil society and democracy as we know it. Cryptocurrencies help criminals hide their money behind a veil of secrecy and deception. Digital wallets allow rogue states to spy on the lawful. Giving up cash for Bitcoin would be a grave mistake.