Call it an urban experiment on a grand scale, where cryptocurrency lays the foundation for daily life — literally — yet may be as explosive as the volcano powering it all.
News came last week that El Salvador is planning to build a “bitcoin city,” in turn funded by bitcoin, still the marquee name in cryptocurrency, and being actively promoted by the government (and monetary policy) as legal tender.
The city that bitcoin built, or will build, was announced via tweet by El Salvador President Nayib Bukele. As previously noted here, Bukele has been an active bitcoin booster, but the country’s rollout of bitcoin as mainstream payment method, in tandem with the digital Chivo wallet, has been a bit bumpy.
Read also: El Salvador Pours Bitcoin Profits Into Health and Education Amid Ongoing Chivo Wallet Fraud Furor
One specific feature of the city, which is scheduled to break ground near the Conchagua volcano in the southeastern part of the country: There will be no taxes levied (except for value added taxes, or VAT).
In a glimpse into how it will all work, where the site itself is going to tap the Conchagua volcano’s geothermal energy in order to facilitate bitcoin mining, Reuters reported that Bukele said, “Invest here and make all the money you want. This is a fully ecological city that works and is energized by a volcano.” As for the funding itself, the country will be using VAT to fund bitcoin bond issuance.
Funding the Crypto City of Tomorrow
Half of the VAT will fund bonds to build infrastructure, the other half will fund city services. The infrastructure piece of the buildout will reportedly cost 300,000 bitcoin (at a recent $58,000 per coin that is equivalent to about $17.4 billion USD). Bitcoin is an intricate part of the design, it seems, as the city will be circular in design, will have its own airport, and a central plaza will be built that will look like a bitcoin.
Might we be relieved that this is not all being funded with Dogecoin and the plaza would resemble a Shiba Inu?
Samson Mow, chief strategy officer of blockchain firm Blockstream, has said the first bond sale will be worth as much as $1 billion, will be backed by bitcoin and half of the money raised would be slated to buying bitcoin in the open market.
“This is going to make El Salvador the financial center of the world,” said Mow in remarks this past weekend. The volcano will supply energy to the city, and as had been noted in June, that same volcano was slated to be used to power bitcoin mining.
Now: We’re seeing a number of trends converge here, all tied to El Salvador’s efforts. Floating the bitcoin bonds will show whether the crypto can cross the Rubicon into more mainstream finance; the development of a city that is funded by bitcoin itself is a novelty, but it will bear watching who actively wants to become an inhabitant of the city. Recall that a significant percentage of El Salvador’s citizenry has said they are less than enthusiastic about bitcoin.
Read more: Poll Shows 70 Pct of Salvadorans Are Anti-Bitcoin
The energy conundrum inherent in bitcoin/crypto production (it takes a lot of energy to mine crypto) may indeed be solved by the volcano/geothermal part of the equation. But what the ambitious city-built-on-bitcoin plans don’t specifically address: the price volatility that has been a key hallmark of the crypto, how the city would sustain operations in a period of that extreme volatility, and even what happens if, well, bitcoin goes bust. People will still need to live, after all, in that fabled city, and paying for it all will be a daily concern.
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