El Salvador aims to establish the world’s first “Bitcoin City,” first funded by Bitcoin-backed bonds. The president, Nayib Bukele made the announcement on Saturday at an event closing a week-long promotion of bitcoin in El Salvador.
Bukere claimed the city, planned in the eastern region of La Union, would be “fully ecological” since it be getting geothermal power from a volcano. The city will also not be levying any taxes except for value-added tax (VAT).
“This is a fully ecological city that works and is energized by a volcano.”
“Invest here and make all the money you want,” Bukele said. He graced the event at the beach resort of Mizata on Saturday while dressed all in white and wearing a baseball cap backwards.
Half of the VAT levied would be used to fund the bonds issued to build the city. The other half would pay for services such as garbage collection, Bukele said. He furthermore, estimated the public infrastructure would cost around 300,000 bitcoins.
Replying to a tweet by Watcher.guru on the Bitcoin City, President Nayib Bukere said “Prolly nothing”.
El Salvador became the first country in the world to recognize Bitcoin as legal cash in September.
Despite the fact that Bukele is a popular president, opinion polls reveal that Salvadorans are skeptical of his enthusiasm for Bitcoin, and its rocky rollout has fueled anti-government protests.
The First Bitcoin City
Bukele claimed Bitcoin City would be circular, with an airport, residential and commercial sections. In addition, the city will have a center plaza designed to look like a Bitcoin symbol from the air. He also likened this city with cities that Alexander the Great has created.
“If you want Bitcoin to spread over the world, we should build some Alexandrias,” he said. Bukele is a tech-savvy 40-year-old who in September proclaimed himself “dictator” of El Salvador on Twitter in an apparent joke.
El Salvador intends to issue the first bonds in 2022. This is according to Bukele, who also implied that it will happen within 60 days.
El Salvador will begin selling some of the Bitcoin used to fund the bond after a five-year lock-up period which provides investors with an “additional coupon”. Mow further stated he believes the cryptocurrency’s value will continue to climb strongly.
‘Liquid Network’
Bitcoin will back the first 10-year sale dubbed the “volcano bond”.
It will be worth $1 billion and have a 6.5 percent coupon. This is according to Samson Mow, chief strategy officer of blockchain technology provider, Blockstream. He stated that half of the funds would be used to purchase Bitcoin on the open market. Afterwards, other bonds would inevitably follow.
“This is going to make El Salvador the financial centre of the world,” he said.
The bond would be issued on a Bitcoin sidechain network known as the “liquid network.” El Salvador’s government is working on a securities law to help with the process. According to Mow, they will grant Bitfinex the first license to operate an exchange.
Exchange of cryptocurrencies in a presentation behind Mow, Bitfinex was named as the bond’s book runner.
According to Mow; once ten of these bonds is created, $5 billion in Bitcoin will be removed from the market for several years.
“And if you get ten more governments to do these bonds, you’ve got half the market cap of Bitcoin right there.”
“If Bitcoin at the five-year mark reaches $1 million, which I believe it will, they will sell Bitcoin in two quarters and recoup that $500 million,” Mow claimed. He also argued that the “game theory” on the bonds offered the first issuer El Salvador an advantage.