El Salvador plans first ‘Bitcoin City’, backed by bitcoin bonds

Speaking at an event that closed a week-long bitcoin promotion in El Salvador, Bukele said that the planned city in the eastern region of La Unión would get geothermal power from a volcano and would not charge any taxes except value added tax (VAT). .

“Invest here and earn all the money you want,” Bukele said in English, dressed all in white and with a backwards baseball cap, at the Mizata resort. “This is a totally green city that works and is energized by a volcano.”

Half of the VAT collected would be used to finance the bonds issued to build the city, and the other half would pay for services such as garbage collection, Bukele said, estimating that public infrastructure would cost around 300,000 bitcoins.

Although Bukele is a popular president, opinion polls show that Salvadorans are skeptical of his love for bitcoin, and his uneven introduction has fueled protests against the government.

Comparing his plan to the cities founded by Alexander the Great, Bukele said that Bitcoin City would be circular, with an airport, residential and commercial areas, and would feature a central plaza designed to look like a bitcoin symbol from the air.

“If you want Bitcoin to spread around the world, we should build some Alexandrias,” said Bukele, a 40-year-old tech expert who proclaimed himself a “dictator” of El Salvador on Twitter in September in an apparent joke.

El Salvador plans to issue the initial bonds in 2022, Bukele said, suggesting it would be in 60 days.

Samson Mow, chief strategy officer at blockchain technology provider Blockstream, told the meeting that the first 10-year issue, known as the “volcanic bond,” would be worth $ 1 billion, backed by bitcoin and with a coupon of 6.5 %. Half of the sum would go towards buying bitcoins on the market, he said. Other ties would follow.

After a five-year lockdown, El Salvador would start selling some of the bitcoins used to fund the bond to give investors an “additional coupon,” said Mow, who posited that the value of the cryptocurrency would continue to rise strongly.

El Salvador buys bitcoin when digital currency becomes legal tender

“This is going to make El Salvador the financial center of the world,” he said.

The bond would be issued on the “liquid network”, a bitcoin side chain network. To facilitate the process, the government of El Salvador is working on a securities law and the first license to operate an exchange would go to Bitfinex, Mow said.

Cryptocurrency exchange Bitfinex was listed as the book broker for the bond in a presentation behind Mow.

Once 10 of those bonds were issued, $ 5 billion in bitcoin would be withdrawn from the market for several years, Mow said. “And if you get 10 more countries to make these bonds, that’s half the market capitalization of bitcoin.”

The “game theory” on bonds gave El Salvador’s first issuer an advantage, Mow argued, saying: “If bitcoin at the five-year mark reaches $ 1 million, which I think it will, they will sell bitcoin at two quarters and they’ll get that back. $ 500 million. ”


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