El Salvador’s Bitcoin-friendly president, Nayib Bukele, is once again hitting the headlines. After making bitcoin legal tender earlier this year, the charismatic leader has announced plans to build “Bitcoin City” using tokenised bitcoin-backed bonds.
Volcano-Powered ‘Bitcoin City’
On Saturday, President Bukele revealed to a captivated crowd that his government, in partnership with Blockstream and Bitfinex, would be developing “Bitcoin City”, funded through the issuance of bitcoin-backed billion dollar bonds.
The party-like atmosphere was electric, leaving some observers lost for words.
Bukele told the crowd that Bitcoin City would rely on volcano-generated geothermal energy and, even more exciting, that it would be entirely tax-free for residents, save for a 10 percent value-added tax (VAT) applied to all transactions in the region.
Invest here and make all the money you want. This is a fully ecological city that works and is energised by a volcano.President Nayib Bukele
The Nuts and Bolts
In terms of some of the practicalities, Bukele noted that half of the money raised through VAT would be used to pay off the bonds issued to fund the city’s startup costs, while the other half would be used to fund public services.
At this stage, details are somewhat sketchy but the goal is clearly to make “Bitcoin City” an attractive destination for foreign investment. As the President said: “If you want bitcoin to spread over the world, we should build some Alexandrias.”
Some of the more interesting aspects of the proposed city include that its design would be circular, and contain an airport as well as residential and commercial districts. Apparently, the central plaza may even have a Bitcoin symbol when viewed from above.
In order to issue the bonds, El Salvador has partnered with Blockstream and iFinex (the parent company of Bitfinex). The latter will be granted a securities licence in order to issue the Bitcoin bonds, something that is expected to take place within 60 days.
One interesting feature of the Bitcoin bond is that it will have special dividends attached to it generated through the staggered liquidation of bitcoin. These will be paid out to holders through Blockstream’s asset management platform. Critically, the use of this platform will enable investors to get involved for as little as US$100 – that simply isn’t the case today for retail investors who want to invest in government bonds.
Of all of Bukele’s moves since making bitcoin legal tender, the creation of bitcoin-backed bonds may end up being his biggest yet. While the traditional finance world may view this move as risky, those operating in the crypto space have welcomed the decision with open arms.
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