BITCOIN is undergoing the biggest test in its 12-year history as El Salvador becomes the first country to adopt it as legal tender yesterday.

Both enthusiasts and detractors of crytocurrencies will be monitoring the experiment to see if a significant number of people want to transact with Bitcoin when it circulates alongside the U.S. dollar, and whether it brings any benefits to the violent, impoverished Central American nation.

The country bought 400 bitcoins ahead of the rollout, with a market value of about US$20 million at current prices. The country plans to buy “a lot more” of them, President Nayib Bukele said via Twitter, after buying the first batch of 200.

If the experiment is a success, other countries may follow El Salvador’s lead. Its adoption will get an initial boost from the government’s Bitcoin wallet Chivo, which comes pre-loaded with US$30 worth of the currency for users who register with a Salvadoran national ID number.

Businesses will be required to accept Bitcoin in exchange for goods and services and the government will accept it for tax payments. The plan is the brainchild of El Salvador’s 40-year-old president, who says it will draw more people into the financial system and make it cheaper to send remittances.

“This is brave new world stuff,” said Garrick Hileman, head of research for the Miami-based Blockchain.com. “We are in unchartered waters with this launch, but I’m glad to see this experiment happen overall, and I think we’ll learn a lot from it.”

Bukele’s administration has installed 200 Bitcoin ATMs around the country that can be used to exchange the cryptocurrency for U.S. dollars. The Finance Ministry created a US$150 million fund at state-run bank Banco de Desarrollo de la Republica de El Salvador, Bandesal, to back the transactions.

The U.S. dollar will remain the national currency for public accounting purposes and merchants who are technologically unable to receive the e-currency will be exempt from the law, the government has said.

While Bukele himself enjoys approval ratings of more than 80 percent, a poll last week by El Salvador’s Universidad Centroamericana Jose Simeon Canas found his Bitcoin law is widely unpopular.

The International Monetary Fund warned of the risks of using Bitcoin, which lost nearly half its value from April to May, and the World Bank declined a request from El Salvador’s government to help the government adopt it, citing environmental and transparency drawbacks.

(SD-Agencies)