El Salvador was the first country in the world to use bitcoin as legal tender, after it was adopted as such by the Legislative Assembly of El Salvador in 2021. It has been promoted by Nayib Bukele, the president of El Salvador, who claimed that it would improve the economy by making banking easier for Salvadorans, and that it would encourage foreign investment. In 2022, more Salvadorians had Bitcoin Lightning wallets than bank accounts.

The adoption was criticized both internationally and within El Salvador, due to the volatility of bitcoin, its environmental impact, and lack of transparency regarding the government's fiscal policy. By 2024, El Salvador had agreed to partially limit its involvement with bitcoin as part of a deal made with the International Monetary Fund (IMF).

In February 2025, bitcoin was rescinded as legal tender in El Salvador. Research showed it was rarely used by the public. In March 2025, The Economist wrote that El Salvador's bitcoin experiment had been a failure, bringing more costs than benefits to the El Salvador economy.

The colón (SVC) was the official currency of El Salvador from 1892 until it was replaced by the US dollar on January 1, 2001, when the Legislative Assembly of El Salvador passed the Monetary Integration Act under the administration of former President Francisco Flores. The Act authorized the free circulation of the United States dollar in El Salvador, and removed the colón from circulation. The purpose of dollarizing El Salvador was to achieve financial stability by encouraging foreign investment and decreasing transaction costs of international trade.

However, the government was unable to control monetary policy after dollarization, as the value of currency was tied to the United States Federal Reserve. The exchange rate, which was fixed at one U.S. dollar being equivalent to 8.75 colóns, decreased the purchasing power of the population. Dollarization slowed down El Salvador's exports because it could not compete against the undervalued currencies of other developing countries such as China.

The lack of financial literacy harmed the population of El Salvador since they did not know how to use the US dollar, nor did they understand its value.

Remittances accounted for 23% of GDP in 2020. They are currently delivered by money transmitters, which operate on an in-person basis.

On June 5, 2021, President of El Salvador Nayib Bukele announced a bill to adopt bitcoin as legal tender in El Salvador, via an English-language video at Bitcoin Conference 2021 in Miami. Bukele claimed that the adoption of bitcoin would make it easier for Salvadorans living abroad to send remittances to their relatives in the country. The use of bitcoin would also make digital transactions more accessible to underbanked people.

On June 9, 2021, the Legislative Assembly of El Salvador voted to adopt the Bitcoin Law, which would make the cryptocurrency legal tender in the country, with a majority vote of 62 of the 84 deputies in favor. The government announced that it had set aside $150 million in cash to back the country's bitcoin. The World Bank rejected a request from the government to assist with the implementation of the law due to transparency concerns and the environmental impact of bitcoin mining.

The government announced that it would distribute US$30 in bitcoin to people who sign up to use an electronic wallet called Chivo (Salvadorean slang for 'cool'), at a cost of up to $75 million. Chivo is run by a private enterprise, but information regarding the platform and its policies are classified by the government.

In September 2021, a poll published by the Central American University found that 9 out of 10 Salvadorans did not have a clear understanding of what bitcoin was, and 68% disagreed with the decision to adopt it as legal tender. The government of El Salvador purchased ₿400, worth about $20.9 million at the time, on September 6. On September 7, 2021, the Bitcoin Law came into effect and bitcoin became legal tender in El Salvador, making it the first country in the world to do so. As part of this adoption, the government began requiring all businesses to accept it.

Under the law, transactions in bitcoin are not subject to capital gains tax, and foreign bitcoin investors who invest over ₿3 in the country are eligible for permanent residence.

The adoption of bitcoin as legal tender in El Salvador drew criticism both internationally, and within El Salvador. On 7 September, thousands of protestors gathered in San Salvador to protest the launch of Chivo and the adoption of bitcoin. The cause of these protests was concern over a lack of transparency regarding the creation of the Bitcoin Law and Chivo, and the use of tax dollars to purchase bitcoin. The limited rate of internet penetration in El Salvador would also limit the number of people who could make use of cryptocurrency.

Many international financial experts warned that bitcoin's volatility would introduce unnecessary risk and instability to El Salvador's underdeveloped economy. In July 2021, Moody's Investors Service downgraded the credit rating of El Salvador, citing Bukele's fiscal policies and the adoption of bitcoin as a factor. The day following El Salvador's adoption of bitcoin, Panamanian congressman Gabriel Silva proposed a similar bill that would give "legal, regulatory, and fiscal certainty to the use, holding and issuance of digital value and crypto assets in the Republic of Panama."

Some critics suggested that bitcoin's anonymity would make it easier to engage in money laundering and criminal activities. In particular, the potential use of bitcoin to evade taxes, and in transactions related to transnational gangs and human trafficking in El Salvador was noted.

Chivo launched in October 2021, and immediately drew criticism for issues regarding features like payment processing and transactions. Shortly after midnight, Bukele confirmed via Twitter that the app was not available through either the Apple Store or Huawei, although Huawei later added it. Chivo was disabled a few hours after launch to allow the platform to increase the capacity of its servers. The system was also plagued by identity theft, which resulted in the theft of sign-on bonuses.

Shortly after launch, Chivo announced that it was changing its pricing features to prevent scalping, which led to further complaints over the difficulty of day trading on Chivo and pricing discrepancies.

The majority of users stopped using the platform after they had collected their sign on bonuses. According to Financial Times, one of the country's largest banks reported that during the first week of Chivo's under 0.0001% of its transactions were in bitcoin.

In 2021, the government of El Salvador began purchasing bitcoin. It spent about $85.5 million on bitcoin between September 2021 and January 2022. The value of bitcoin began decreasing in November 2021, and had fallen by about 45% of its value by January 2022. It is estimated that the Salvadoran national reserves had lost $22 million as a result of this. The government continued to purchase bitcoins during this dip, and had holdings of at least ₿1,801 valued at $66 million as of January 2022.