In 2021, President Nayib Bukele of El Salvador unveiled ambitious intentions to establish a captivating “Bitcoin City” by the sea, while addressing a gathering of cryptocurrency investors. He envisioned this innovative urban hub to be reminiscent of the renowned cities constructed during the time of Alexander the Great, but with a unique twist — it would be powered by the potential of cryptocurrencies. So, what is Bitcoin City? And what is the meaning behind it?
What is Bitcoin City?
During the presentation of his ambitious plan, Bukele expressed his desire to establish a smart city entirely centered around the utilization of bitcoin (BTC) as the primary cryptocurrency. Among the most remarkable features of Bitcoin City is its funding model. The concept revolves around financing the city’s development through the surplus revenue generated from cryptocurrency sales, in combination with locally sourced energy used for cryptocurrency mining, with the city also being a focal point for foreign investments.
To achieve this, the funding will come from the issuance of Bitcoin Bonds. The El Salvador government’s original plan was to create $1 billion worth of tokenized 10-year bonds on the Liquid Network, facilitated by crypto companies. These bonds will offer a 6.5% annual interest rate, and after 5 years, a dividend will be generated upon selling half of the total capital. Once the global sale of bonds is completed, $500 million will be allocated to purchase cryptocurrencies, and the remaining $500 million will be dedicated to designing and constructing the city’s Bitcoin energy and mining infrastructure. Currently, the plan of the bond issuance is still up in the air.
The approximate location of Bitcoin City is intended to be in close proximity to Conchagua, a municipality of La Unión. Although specific details have not been disclosed, Bukele showcased several visual representations of a circular city at the base of the Conchagua volcano, as he plans to harness the region’s geothermal energy as the primary source of power for the city. The vision for Bitcoin City is to become a completely eco-friendly urban center, striving for zero emissions, and offering attractive tax incentives, including 0% income tax, 0% capital gains tax, 0% property tax, and 0% payroll tax.
El Salvador and Bitcoin
Why did this groundbreaking plan take place in El Salvador, a relatively small Central American country with a population of just 6.5 million? Understanding the context sheds some light on its rationale.
El Salvador has a diverse and storied history, marked by periods of political upheaval, civil unrest, and economic struggles. However, despite enduring these challenges, the country is home to a tenacious and hardworking population, striving to overcome socio-economic issues and promote sustainable development. On September 9th, 2021, President Bukele signed a bill into law, making Bitcoin an official legal tender alongside the US dollar, making El Salvador the world’s first country to adopt Bitcoin in this capacity. This move demonstrated the nation’s willingness to embrace innovation and adapt to evolving global trends.
The driving force behind Bukele’s passionate pursuit of this financial innovation was to find the most expedient path to lift the country out of poverty. Approximately 70% of El Salvador’s population lacks access to traditional banking services due to poverty, inability to prove their address, or geographic isolation. However, with cryptocurrency, all citizens need is a mobile device to participate in economic activities. They can download one of the various cryptocurrency wallets available or utilize the government developed ‘Chivo Wallet’, designed to facilitate easy Bitcoin transactions for everyday use. By embracing Bitcoin, people who were previously excluded from the financial system can now potentially participate in the global economy. Currently, the government is seeking a beefed solution for the crypto payment platform.
Moreover, around 26% of El Salvador’s GDP comprises remittances from Salvadorans working abroad who send money back home to their families. Traditional money transfer companies charge substantial fees for these transactions and may take days to complete them. However, using cryptocurrency infrastructure, remittances can be transferred instantly and at a fraction of the cost. This has the potential to significantly boost the country’s economy.
A Promising Future
Amidst socio-economic challenges such as crime, poverty, and inequality, El Salvador sees potential for growth and advancement. As the nation progresses, it aspires to create a better future for its people and position itself as an engaged participant in the global community. Bitcoin City represents a significant stride for Salvadorans and a momentous leap in the realm of cryptocurrency development.
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