When the countries and one of the biggest economies of the competitive world, are still apprehensive of embedding the cryptocurrencies like Bitcoin, Ethereum etc., in their financial systems.
In the guild of few other countries who have raised suspicions against these virtual assets, Reserve Bank of India (RBI) governor Shaktikanta Das has cautioned the investors on its probable risks involved.
Though there are infamous debates being held on account of its emissions and the net imbalance of sustainability, with even a few experts claiming otherwise proving how this energy consumption is lesser than the conventional modes of transaction, we remain divided and reclusive.
However, there are countries like El Salvador, who have announced to build a “Bitcoin city”, to be funded by bitcoin-backed bonds in order to attract and flow investments in this country, as per its President Nayib Bukele.
Even this September, El Salvador became the first country to acknowledge the Bitcoin as a legal tender and is already running a pilot Bitcoin mining project, beside another volcano by the name Tecapa, powered by geothermal power plant.
What are his plans for the Bitcoin city?
This city has been located in the eastern region of the country along the Gulf of Fonseca, hosting the Conchagua Volcano whose geothermal energy will be used to power the transactions and will be exempted from any levy except the value added tax (VAT).
As per the President: “Invest here and make all the money you want. This is a fully ecological city that works and is energized by a volcano. This city will deem to offer digital education, technology and sustainable public transportation.”
Bitcoin City, as per the President, shall be strategically circular, having an airport for better access, along with residential and commercial areas.
The city shall have a central building which will be designed to look like a bitcoin symbol, when seen from the air.
“This is going to make El Salvador the financial center of the world”.
It has been stated that half of this VAT levied will be utilized for funding the bonds in order to build the city while the other half will be used to pay for services associated with city maintenance such as garbage collection.
It has been estimated that the public infrastructure to be setup would require around 300,000 bitcoins.
Comparing his idea to the very discovery of cities by Alexander the Great, he said: “If you want bitcoin to spread over the world, we should build some Alexandrias”.
How will the ‘Bitcoin bonds’ be issued?
According to the Chief strategy officer of blockchain technology facilitator Blockstream, the first set of bonds issued will have a dedicated tenure of 10 years, will be called the “volcano bond” and would be worth $1 billion.
This arrangement is to be backed by bitcoin and will hold a discount coupon of 6.5%. half of which will be sent straight to buy the bitcoins prevailing in market.
Other bonds will be introduced and after 5 years of lock-up period initially, the country will use some of its bitcoin and sell these to fund the bond, giving investors an “additional coupon” for the same.
“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”, as per the Chief strategist.
The ideal municipality will act as a tax haven for wealthy crypto investors – no taxes on income, property etc., just a mere 10% value-added tax (VAT) to keep the things flowing.
“The Bitcoin Bond represents the start of a reformation of capital markets, built on Bitcoin and layer-2 technologies like the Liquid Network. Now, investment capital can flow in from around the globe without friction.”
“Dividends can be distributed to investors instantly, with built-in cryptography to maintain confidentiality. Bonds can be traded 24/7 with other assets like stablecoins, using protocols that help eliminate the need for trust”.
Is there something to be wary of?
Although he is a favored President in the country yet the nation-wide opinion polls show Salvadorans to be cautious of his love for bitcoin.
It is worth mentioning that this introduction of Bitcoin as accepted currency, has triggered numerous protests against the government.
Not just the countrymen, the Bank of England’s Governor (head of Central Bank of the country) has voiced his concerns for El Salvador that has willingly chosen bitcoin as a tradable currency.
“What would worry me most of all is, do the citizens of El Salvador understand the nature and volatility of the currency they have.”
But the president Bukele claims otherwise: “Bitcoin City is committed to free and equal access to everything. Thanks for investing in the future.”
It can be used as a hedge against the inflation and financial patriarchy.
“Bitcoin has many use cases, but helping people to gain more freedom, to empower their human rights and free themselves from corruption … that’s really life-changing and very important.”
An interesting project, but only on paper! I predict that it will not be realized like all the dreams of those who invested in cryptocurrencies
Hi Isabella, I hope that it works. The world would be a better place if even half of the things approved, are duly implemented.