El Salvador became 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 has been 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. In 2024, El Salvador agreed to partially limit its involvement with Bitcoin as part of a deal made with the International Monetary Fund (IMF). 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.

In 2025 Bitcoin was abolished as legal tender in El Salvador. Research showed it was rarely used by the public.

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.

In 2019, the village of El Zonte adopted bitcoin as a payment following a donation of $100,000 worth of bitcoin from an anonymous donor. The donation came with the stipulation that the village adopt a circular economy based on bitcoin. Many residents in El Zonte did not have access to banking services, and accessed bitcoin through mobile devices and Bitcoin ATMs in commercial areas. The village has since become known as "Bitcoin Beach", and has been cited as an example of using cryptocurrency as legal tender by advocates of bitcoin. As of 2022, Honduras and Guatemala had also made attempts to attract tourists through the use of bitcoin in "bitcoin hubs."

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.