El Salvador's world-first adoption of bitcoin hits snags

SAN SALVADOR, Sept 7 (Reuters) - El Salvador rushed to iron out snags on Tuesday after becoming the first country to adopt bitcoin as legal tender, unplugging the digital wallet to cope with demand and pushing for popular app stores to carry the government-backed app.

The Chivo digital wallet became available on the app platforms hosted by Apple (AAPL.O) and Huawei (HWT.UL) shortly before midday local time Tuesday, after President Nayib Bukele, who pushed for adoption of the cryptocurrency and has promised $30 of bitcoin for each user, railed against the tech giants for not carrying the application.

The government purchased an additional 150 bitcoins on Tuesday, worth around $7 million, and McDonalds (MCD.N) began accepting the cryptocurrency in its restaurants in El Salvador.

Bukele said using bitcoin will help Salvadorans save $400 million a year on commissions for remittances, while giving access to financial services to those with no bank account.

Carlos Garcia, who went to a booth giving out advice on the new currency at a shopping mall on Tuesday to learn about how transactions would work, said he was excited about the opportunities bitcoin could provide.

"El Salvador is taking a great step forward today," he said.

However, the poorest may struggle to access the technology needed to make bitcoin work in El Salvador, where nearly half the population has no internet access and many more only have sporadic connectivity.

"I'm going to continue suffering with or without bitcoin," said sweets seller Jose Herrera, who said he had trouble accessing a mobile phone.

Over a thousand people protested against the implementation of bitcoin around noon, marching to the Supreme Court building, burning a tire and setting off fireworks.

Some say the move may fuel money laundering and financial instability. It has already muddied the outlook for more than $1 billion in financing that El Salvador is seeking from the International Monetary Fund (IMF).

Bukele, 40, scores highly in opinion polls but has been accused of eroding democracy, not least by the administration of U.S. President Joe Biden.

Last week, top judges appointed by his lawmakers ruled that he could serve a second term, breaking away from a constitutional rule that forbade consecutive terms.

Earlier on Tuesday, Salvadorans trying to download the Chivo digital wallet had found it was unavailable on the main app stores. Bukele said the government had temporarily unplugged it, in order to connect more servers to deal with demand.

Bukele blamed Apple Inc, Alphabet's Google (GOOGL.O) and Huawei's app download platforms for the delay.

"Release him! @Apple @Google and @Huawei," Bukele wrote in a tweet, which was accompanied by a red-faced 'angry' emoji. The wallet was later available from Huawei and Apple.

Google and Apple did not immediately respond to requests for comment.

Polls indicate Salvadorans are wary of the volatility of the cryptocurrency, which can shed hundreds of dollars in value in a day.

Ahead of the launch, El Salvador bought 400 bitcoins worth around $20 million, Bukele said, helping drive the price of the currency above $52,000 for the first time since May. Hours later, bitcoin had weakened and last traded down 8.84% at $47,327.32.

Ethereum, another crypto currency, fell 10.52% to $3,537.62, while crypto exchange Coinbase Global (COIN.O) slid 3.96% after reporting delays in some transactions on its platform.

The change means businesses should accept payment in bitcoin alongside the U.S. dollar, which has been El Salvador's official currency since 2001 and will remain legal tender.

It remains unclear whether businesses will be penalized if they do not accept bitcoin.

In the run-up to the launch, the government installed ATMs that allow bitcoin to be converted into dollars and withdrawn without commission from the digital wallet, called Chivo.

"Like all innovations, El Salvador's bitcoin process has a learning curve," Bukele said in a tweet. "Not everything will be achieved in a day, or in a month."

"We must break the paradigms of the past. El Salvador has the right to advance towards the first world," he wrote.

In barely two years in office, Bukele has taken control of almost all levers of power. But although he has promised to clean up graft, the Biden administration recently put some of his close allies on a corruption blacklist.

Analysts fear that the adoption of bitcoin, whose transaction records are distributed across the internet, beyond the reach of national jurisdictions, could fuel money laundering.

After the bitcoin law was approved, the ratings agency Moody's downgraded El Salvador's creditworthiness, while its dollar-denominated bonds have also come under pressure.

The World Bank reiterated on Tuesday that it could not help El Salvador in its process of adopting bitcoin as legal tender "given environmental and transparency shortcomings," a World Bank spokesperson told Reuters.

Reporting by Anthony Esposito in Mexico City and Nelson Renteria in San Salvador; Additional reporting by Wilfredo Pineda in El Zonte, El Salvador and Frank Jack Daniel; Editing by Alistair Bell and Rosalba O'Brien