El Salvador’s President Nayib Bukele Reveals Plan for Volcano-Powered ‘Bitcoin City’
By MSN News
In a rock concert-like atmosphere, El Salvador’s President has announced his government will build a seaside “Bitcoin City” at the base of a volcano.
Nayib Bukele used a gathering of bitcoin enthusiasts on Saturday night to launch his latest idea, much as he used an earlier bitcoin conference in Miami to announce in a video message that El Salvador would be the first country to make the cryptocurrency legal tender,
A bond offering would happen in 2022 entirely in bitcoin, Mr Bukele said, wearing his signature backwards baseball cap. And 60 days after financing was ready, construction would begin.
The city will be built near the Conchagua volcano to take advantage of geothermal energy to power both the city and bitcoin mining — the energy-intensive solving of complex mathematical calculations day and night to verify currency transactions.
The government is already running a pilot bitcoin mining venture at another geothermal power plant beside the Tecapa volcano.
The seaside Conchagua volcano sits in south-eastern El Salvador on the Gulf of Fonseca.
While the volcano has steaming and smoking vents, there are no records of it ever erupting.
The government will provide land and infrastructure and work to attract investors.
The only tax collected there will be the value-added tax, half of which will be used to pay the municipal bonds and the rest for municipal infrastructure and maintenance.
Mr Bukele said there would be no property, income or municipal taxes and the city would have zero carbon dioxide emissions.
The city would be built with attracting foreign investment in mind, and there would be residential areas, malls, restaurants and a port, Mr Bukele said.
The President also talked of digital education, technology and sustainable public transportation.
“Invest here and earn all the money you want,” Mr Bukele told the cheering crowd in English at the closing of the Latin American Bitcoin and Blockchain Conference being held at a beach resort in El Salvador.
“This is a fully ecological city that works and is energised by a volcano.”
Bitcoin has been legal tender in El Salvador alongside the US dollar since September 7.
Likening his plan to cities founded by Alexander the Great, Mr Bukele said Bitcoin City would be circular, with an airport, and residential and commercial areas, and would feature a central plaza designed to look like a bitcoin symbol from the air.
“If you want bitcoin to spread over the world, we should build some Alexandrias,” said Mr Bukele, a tech-savvy 40-year-old who in September proclaimed himself “dictator” of El Salvador on Twitter in an apparent joke.
The government is backing bitcoin with a $US150 million ($207 million) fund. To incentivise Salvadorans to use it, the government offered $US30 worth of credit to those using its digital wallet.
Critics have warned the currency’s lack of transparency could attract increased criminal activity to the country and the digital currency’s wild swings in value will pose a risk to those holding it.
Bitcoin was originally created to operate outside government-controlled financial systems. Mr Bukele says it will help attract foreign investment to El Salvador and make it cheaper for Salvadorans living abroad to send money home to their families.
Concern among the Salvadoran opposition and outside observers has grown this year as Mr Bukele has moved to consolidate his power.
Voters gave the highly popular President’s party control of the congress earlier this year. The new representatives immediately replaced the members of the constitutional chamber of the Supreme Court and the attorney-general, leaving Mr Bukele’s party firmly in control of the other branches of government.
In response, the US government said it would shift its aid away from government agencies to civil society organisations.
This month, Mr Bukele sent a proposal to congress that would require organisations receiving foreign funding to register as foreign agents.
El Salvador to issue ‘volcano bond’
Samson Mow, chief strategy officer of blockchain technology provider Blockstream, told the gathering the first 10-year issue, known as the “volcano bond”, would be worth $US1 billion, backed by Bitcoin and carrying a coupon of 6.5 per cent.
Half of the sum would go to buying bitcoin on the market, he said. Other bonds would follow.
After a five-year lock-up, El Salvador would start selling some of the bitcoin used to fund the bond to give investors an “additional coupon”, Mr Mow said, positing that the value of the cryptocurrency would continue to rise robustly.
“This is going to make El Salvador the financial centre of the world,” he said.
The bond would be issued on the “liquid network”, a Bitcoin sidechain network.
To facilitate the process, El Salvador’s government was working on a securities law, and the first licence to operate an exchange would go to crypto exchange Bitfinex, Mr Mow said.
Bitfinex was listed as the book runner for the bond on a presentation behind Mr Mow.
Once 10 such bonds were issued, $US5 billion in bitcoin would be taken off the market for several years, he said.
“And if you get 100 more countries to do these bonds, that’s half of Bitcoin’s market cap right there.”
The “game theory” on the bonds gave first issuer El Salvador an advantage, Mr Mow argued, saying: “If bitcoin at the five-year mark reaches $1 million, which I think it will, they will sell bitcoin in two quarters and recoup that $500 million.”
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