El Salvador Plans to Build World's First 'Bitcoin City', Funded by Bitcoin-Backed Bonds

Eva Fox by Eva Fox November 21, 2021

El Salvador Plans to Build World's First 'Bitcoin City', Funded by Bitcoin-Backed Bonds

Photo: Reuters/Jose Cabezas

El Salvador plans to build the world's first Bitcoin City, originally funded by Bitcoin-backed bonds, President Nayib Bukele said, according to Reuters.

Speaking at an event closing a week-long promotion of Bitcoin in El Salvador, Bukele said he plans to build a Bitcoin City funded by bitcoin-backed bonds. The city, planned in the eastern region of La Union, will receive geothermal energy from the volcano and will not levy any taxes other than value added tax (VAT). "Invest here and make all the money you want," said Bukele. "This is a fully ecological city that works and is energized by a volcano."

Half of the VAT levied will be used to fund bonds issued for the city's construction, and the other half will be used to pay for services to sustain the city, such as garbage collection. The public infrastructure would cost around 300,000 Bitcoins.

Bukele said Bitcoin City would be circular, with an airport, residential and commercial areas, and 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," he said.

El Salvador had planned to issue the first bonds in 2022, assuming it would be in 60 days. The first 10-year bond, known as the "volcano bond," will be worth $1 billion, backed by Bitcoin and with a 6.5% coupon. Half of the amount will go towards buying Bitcoin on the market, he said. Other bonds will follow.

After a five-year lock-up, El Salvador will begin selling some of the Bitcoin used to fund the bond to give investors an "additional coupon," stating that the cryptocurrency value will continue to rise steadily. "This is going to make El Salvador the financial center of the world," said Samson Mow, chief strategy officer of blockchain technology provider Blockstream.

The bond would be issued on the "liquid network," a Bitcoin sidechain network. To facilitate the process, El Salvador's government is working on a securities law, and the first license to operate an exchange would go to Bitfinex, Mow said. Once 10 such bonds were issued, $5 billion in Bitcoin would be taken off the market for several years, Mow said. "And if you get 10 more countries to do these bonds, that's half of Bitcoin's market cap right there." "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," he continued.

© 2021, Eva Fox | Tesmanian. All rights reserved.

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