El Salvador Plans to Build Tax-Free Bitcoin City

El Salvador is delving further into bitcoin and plans to issue sovereign bitcoin bonds, Bloomberg reported.

The country, which has already made bitcoin a legal tender, will issue $1 billion in tokenized U.S.-dollar denominated 10-year bonds to pay 6.5% through the Liquid Network, according to the report.

Half of the funds will be converted to bitcoin. The other half will help with infrastructure and bitcoin mining, which will be powered with geothermal energy, the report stated.

Following a five-year-lockup period, the government plans to sell its bitcoins and pay investors additional dividends, according to the report.

According to Blockstream, which designs and develops software solutions, at the end of the bond’s 10th year, the annual percentage yield (APY) will come out to 146% because of the projected bitcoin appreciation, the report stated.

Blockstream Chief Strategy Officer Samson Mow said, per the report, the lockup period will take $500 million in bitcoin out of the market for five years, bolstering the tokens’ scarcity and value.

Additionally, El Salvador will build “Bitcoin City,” which will be free of income, property and capital gains taxes, according to the report. The only tax will be a 10% value-added tax for the construction of the city and various services. The city will be built near the Conchagua volcano. The idea is that the volcano will provide energy for mining.

El Salvador is looking at becoming “the financial center of the world,” according to Mow, who said he thinks other countries will begin to take note, per the report. He said the first countries to replicate El Salvador’s efforts will have a “massive advantage,” and countries that don’t will experience “bitcoin FOMO,” or fear of missing out.

Last month, user complaints were becoming more common in El Salvador, with users falling victim to scammers and losing lots of money. There have been other failures including incompatibility with other wallets and various kinds of technical issues.

Read more: Glitches, Fraud and High Fees Upset El Salvador’s Bitcoin Chivo Wallet Users