June 24, 2021

El Salvador Pioneering Bitcoin Adoption: Questions, Concerns, and Complexities

El Salvador: A pioneer in adopting bitcoin as legal tender – but there are more concerns, questions, and complexities than answers.


On what grounds did the World Bank reject the request to help El Salvador in adopting bitcoin as legal tender? The international development organisation alluded to Bitcoin’s environmental impact and its utility in tax evasion, money laundering and other illegal activity. But looking deeper, there are more concerns, questions and complexities than answers.

El Salvador is the smallest country in Central America, and its legal currency is the US dollar. Under the leadership of President Nayib Bukele, El Salvador is breaking the paradigm that created an economy that relies greatly on high-cost remittances from Salvadorans living in the United States, and which left much to be desired in the distribution of wealth and efficiency.

President Bukele’s latest announcement of the adoption of bitcoin as legal tender has raised concerns among established stakeholders that have for long dominated the financial system and lack experience with bitcoin and other cryptocurrencies.

Regardless of the underlying reason for President Bukele’s incorporation of Bitcoin as legal tender, the decision has been established in the law.  Meanwhile, the local development bank BANDESAL (Banco de Desarrollo de El Salvador), has created a $150 million trust to ensure convertibility into US dollars.

Nonetheless, the economy of El Salvador will face significant challenges, some of which have forced renowned institutions to hesitate in offering their support.

Embedding Bitcoin into the Salvadoran economy: Trust Funds, Open Banking, and Transparency

I’ve been in the blockchain industry since 2017 and, at the Open Bank Project, I’m in charge of incorporating blockchain-based financial assets into traditional finance via open banking infrastructure. In a Proof of Concept with Nova Solution Systems, an OBP sandbox instance was successfully connected to Coinbase APIs, enabling connected banks to offer bitcoin trading solutions to their customers.

Similarly, banks in El Salvador should have the ability to consume and integrate with third-party services to provide enhanced functionality to their customers, such as bitcoin custody, payments, and trading.

Due to our expertise in the open banking and cryptocurrency realms, we have clarity and knowledge surrounding some of the challenges that banks will face when incorporating Bitcoin into the banking system:

1. Inadequate Trust Fund

The first challenge that I foresee is that a trust fund of 150 million will not be enough to meet the demand of an economy that receives billions of USD in remittances per year – if these were to be in bitcoin.

Therefore, banks should be prepared to provide liquidity for the massive inflow of remittances and make it easily transferable into fiat through technological and commercial partnerships with crypto exchanges.

But for banks that haven’t embraced Open Banking, incorporating third-party services into their digital offering won’t be as easy as it sounds.

2. Lack of Open Banking Infrastructure

Open Banking is a well-established movement that has democratized financial data exchange between financial institutions and authorized third parties and has laid the foundation for a vast array of innovations and partnerships. It relies on securely consuming financial data and services under robust authentication and authorization schemes.

By exposing their APIs according to Open Banking guidelines, banks would be well-prepared to enhance their core banking system with bitcoin custodial solutions. However, it seems the country is already taking a questionable direction by working exclusively with Strike, a solution inadequately equipped to work via APIs and to be integrated into core banking systems without a middleware component.

Thus, if banks were to use this type of solution, they would not have the appropriate infrastructure for working with third parties and would put their customers at risk – and Strike would experience most of the benefits.

To meet the demand for remittances that are present in the financial system, banks must create commercial partnerships with exchanges and liquidity partners. But for this, they’ll need Open Banking.

Yet, the problem transcends a simple third-party custodial solution and the exchange from bitcoin to fiat.

3. Concerns surrounding transparency

The real challenge lies in linking a bank identity to a bitcoin transaction to make a seamless transition from bitcoin into the everyday payments of the end-user.  Additionally, linking this bank identity to a crypto transaction will serve for central bank reporting to fiscal authorities and demystify the concerns that bitcoin lacks transparency in an economy that’s known to be influenced by corruption.

Successfully achieving this would provide the banking sector with complete oversight of their customers’ flow of funds – thus limiting the concerns  raised by the World Bank about the lack of transparency.


At the Open Bank Project, we are more than excited to continue consulting governments and the banking sector to help them embed bitcoin into everyday payments, bank accounts, and central bank reporting to tax authorities. These are the essential pillars for Bitcoin to weigh as legal tender in any economy.