The President of El Salvador, Nayib Bukele on Sunday announced a new city centred on being a bitcoin hub - Bitcoin City. The city would be a coastal city along the Gulf of Fonseca in south-western El Salvador, and would be powered by a volcono and funded by a bitcoin-backed bond.
He said that the city would be emission free as it would be powered by a geothermal plant that drew energy from the heat of the nearby volcano Conchagua, which would power both the city and cryptocurrency mining. The city would also have no direct taxes.
Furthermore, the city is planned to be fully round except for the part bordering the volcano and the coast, with a plaza in the center of the city that will have the iconic 'B' shape representing bitcoin.
On the last day of a week-long event to promote bitcoin, Bukele, dressed in a casual white shirt, white pants and wearing a baseball cap in reverse, said that the city would be all encompassing. "Residential areas, commercial areas, services, museums, entertainment, bars, restaurants, airport, port, rail - everything devoted to Bitcoin", he said, in the concert-like event accompanied by fireworks, with neon slogans like 'Feel The Bit' illuminating the stage.
No Taxes
With bitcoin as legal tender in the city, he said, "Invest here and make all the money you want", he said, as he promised zero taxes except value-added tax (VAT), which is an indirect tax on the consumption of goods and services.
Cryptocurrency mining is the process by which new cryptocurrency is created (for example, bitcoin mining creates bitcoin). It requires computers to lend their computational power to solve a series of mathematical problems, who are, in turn, rewarded with more cryptocurrency. It is considered to be a energy-intensive process requiring tremendous amounts of power, with mining driven by diesel and fossil beings attributed to rising carbon emissions. Volcanic power - where steam is generated by harnessing the heat found within volcanos - is considered to be a renewable alternative for ecological mining, and El Salvador has experimented with it in the past.
Bukele, El Salvador's 40-year old Twitter-friendly president, is an ardent supporter of cryptocurrencies and bitcoin, to the extent that under him, El Salvador became the first country in the world to accept bitcoin as legal tender alongside the US dollar - its official country - last year, to attract global investment. This means that bitcoin is accepted for all transactions, for settling taxes and prices can be expressed in bitcoin.
However, rollout of the move had a few hurdles, and a section of businesses in the country have protested the move due to the fluctuating nature of bitcoin's price.
He is also known for his unfiltered expression on social media, as he once called himself the "dictator" of El Salvador on Twitter, and his current Twitter bio says that he is the "CEO of El Salvador."
Also Read: El Salvador Becomes 1st Country In The World To Make Bitcoin Legal Tender
Bitcoin bonds
The cost of the city will be financed through bitcoin bonds. The cost of public infrastructure of the city will be nearly 300,000 bitcoin.
The bitcoin bonds would be called 'volcano bonds' and the bonds backed by bitcoin would carry a coupon (interest rate) or 6.5%, with the first 10-year issue being worth $1 billion. Some of the VAT being collected in the city would go towards funding the bond, and the other half towards public utility.
According to Reuters, the government of El Salvador has started working on a securities law to facilitate the process. The book runner of bond issue would be cryptocurrency exchange Bitfinex.
Samson Mow, chief technology officer of blockchain platform Blockstream, addressed the same gathering, and said that after a five year lockup period, El Salvador would sell some bitcoin to give holders of the bonds "additional" coupon, asserting that the price of bitcoin would rise.
