El Salvador President, Nayib Bukele has announced plans to build the world’s first Bitcoin City to be fully funded by bitcoin-backed bonds.
According to the President, the city planned in the eastern region of La Union would get geothermal power from a volcano and not levy any taxes except for value added tax (VAT).
He said: “This is a fully ecological city that works and is energized by a volcano.
Half of the VAT levied would be used to fund the bonds issued to build the city, and the other half would pay for services such as garbage collection, Bukele said, estimating the public infrastructure would cost around 300,000 bitcoins.
Likening his plan to cities founded by Alexander Gre theat, 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,” said Bukele, a tech savvy 40-year-old who in September proclaimed himself “dictator” of El Salvador on Twitter in an apparent joke.
El Salvador planned to issue the initial bonds in 2022, Bukele said, suggesting it would be in 60 days time.
Samson Mow, chief strategy officer of blockchain technology provider Blockstream, told the gathering the first 10-year issue, known as the “volcano bond”, would be worth $1 billion, backed by bitcoin and carrying a coupon of 6.5%. Half of the sum would go to buying bitcoin on the market, he said. Other bonds would follow.
After a five year lock-up, El Salvador would start selling some of the bitcoin used to fund the bond to give investors an “additional coupon”, Mow said, positing that the value of the crypto currency would continue to rise robustly.
“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 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.
Crypto exchange Bitfinex was listed as the book runner for the bond on a presentation behind Mow.
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.”