El Salvador’s ‘Bitcoin City’ to be backed by bonds and powered by volcano

El Salvador's 'Bitcoin City' - located along the Gulf of Fonseca near a volcano - would be funded with the issuance of a $1bn Bitcoin bond

The president of El Salvador has announced he plans to build the world’s first ‘Bitcoin city’.

According to Nayib Bukele himself, the idea is to create a modern-day version of what Alexander the Great built in Alexandria, Egypt.

Alexandria was the intellectual and cultural centre of the ancient Mediterranean for much of the Hellenistic age and late antiquity. At the time it was considered to be the largest city in the ancient world before being overtaken by Rome.

The idea of Bitcoin City in El Salvador would include a quadruple-threat approach to an urban location, plus renewed ideas regarding energy, physical space, and taxation.

That also means the city would not suffer from CO2 emissions since everything would be powered by the volcano adjacent to the planned site.

The only taxation of a citizen in Bitcoin City would be a 10% sales tax.

Bitcoin-backed bonds as a guarantee

Bitcoin City would also be partially be funded by Bitcoin-backed bonds  – a local government issue of a $1bn tokenized bond that will carry a 6.5% yield for investors.

Samson Mow, chief strategy officer of Blockstream, said the plans include making El Salvador “the financial centre of the world” and “the Singapore of Latin America”.

Mow also added he expects other countries to follow suit.

“The first countries that do this will have a massive advantage. This is the beginning of nation-state Bitcoin FOMO,” Mow said, referring to the term ‘fear of missing out’.

According to Blockstream’s blog post “the $1bn raised will be split between a $500m allocation of Bitcoin (BTC) and a $500m infrastructure spend for building out energy and Bitcoin mining infrastructure in the region”.

El Salvador also aims to create a government securities law and grant a license to Bitfinex Securities to process the bond issuance.

Also, the Bitcoin Bond would have special dividends dispersed on an annual basis generated by the staggered liquidation of Bitcoin.

Using Blockstream’s Asset Management Platform (AMP), dividends are easily paid out to bondholders.

Disclaimer: The views and opinions expressed by the author should not be considered as financial advice. We do not give advice on financial products.

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