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El Salvador plans Bitcoin bond and Bitcoin city

by Patricia

El Salvador is putting in the curves to maintain its position as the number one Bitcoin nation. President Nayib Bukele unveils two amazing plans at a conference.

Niyab Bukele doesn’t really look like a president as he takes the stage at the Latin American Bitcoin Conference, the first bitcoin conference to be held in El Salvador. Dressed all in white, his peaked cap turned upside down on his head, you would probably think he was a rapper rather than a head of state on the street.

But the young president of El Salvador has big plans, and he knows that here, surrounded by the Bitcoin scene, he is an international star. And once again, he’s backing it up with words and with actions.

Bukele, in case it’s not on your radar, made El Salvador a Bitcoin nation by declaring Bitcoin legal tender with the “Ley Bitcoin”. The scene cheered him – for the most part – euphorically, and the Latin American Bitcoin Conference brought one of the top events of the global Bitcoin community to the small Central American country.

At the conference, Bukele has now announced two ventures that are hardly inferior to Ley Bitcoin.

The Bitcoin City on the Gulf of Fonseca

First he boasted – not unjustifiably – about what El Salvador had already achieved: “It took us four months to get everyone off the boat. That was really fast”. He meant that in four months, the country got everyone into the electronic payment method Bitcoin – something the banking system had failed to do after decades. El Salvador accomplished proof of how far superior Bitcoin is to traditional payments, at least technologically.

“We have demonstrated that we can achieve a lot of good things,” the president said, referring to the new veterinary clinic funded by Bitcoin profits. “But now what? We were wondering what we could announce at the conference. Should we bring Satoshi here?”

Bukele then launched into a possibly slightly presumptuous historical comparison. He recalled how Alexander the Great had founded cities called Alexandria all over his conquered empire. “The Alexandrias didn’t occupy the immense territory, they were small, the idea was rather that these Alexandrias would become models, cities like the others would become.” Of course, Alexander the Great’s empire declined, and fairly soon after his death. But the idea, Bukele says, was a good one.

So he and his advisors reasoned, “We wanted to form Alexandria for Bitcoin. We wanted to create the first new Alexandria here, in El Salvador. That’s what we thought, and now we want to launch a ‘Bitcoin City’.”

The plans for this sound whacky and perhaps too ambitious, but they are already relatively far advanced: The city is to be circular, like a coin, and at its centre is to be an expansive plaza displaying the Bitcoin logo, “built of stone so it will last thousands of years.”

The city is to be built on the Gulf of Fonseca, a kind of inlet in the North Pacific Ocean, bordered by El Salvador, Honduras and Nicaragua. The city, Bukele promises, “will contain everything. Commercial areas, municipal services, museums, restaurants, shopping centres, courthouses, railways, a port, an airport. Everything.”

It will be located on a volcano, which will generate the energy for the city – for the city and mining, which will probably also be part of the city. It will become a kind of special economic zone where there will be no taxes on income, assets, capital gains or salaries.

Bukele is already raving about building not just one Alexandria, but “10 Alexandrias, 20 Alexandrias”. But first, there are huge costs for the first Bitcoin Alexandria. The president estimates them at – watch out: 300,000 Bitcoin. That’s about 17 billion dollars.

Where will the country get this money? And how will the infrastructure be financed if there are no taxes?

This question largely leads us straight to Nayib Bukele’s second announcement.

The Bitcoin Bond with Blockstream

El Salvador will raise money through “Bitcoin Bonds”. The country will be the (probably) first in the world to issue government bonds on a blockchain. One billion dollars is to be collected.

For this, Bukele calls a representative of the technical partner on stage: Samson Mow from Blockstream. “This is a very historic moment,” enthuses Mow, “We are issuing bitcoin bonds.”

The bonds will run on the Liquid sidechain as tokens. Blockstream has worked with El Salvador on a design to make the bonds “attractive to a wide range of investors, from cryptocurrency investors and investors seeking interest to HOLDers to regular folks,” Blockstream said on its website. “We believe this bond has the potential to accelerate hyperbitcoinisation and form a new financial system based on bitcoin.”

With the bond, El Salvador will raise $1 billion. The amount will then be divided: With 500 million dollars, the country will buy Bitcoin, with the other 500 million it will develop volcanic energies and establish Bitcoin mining farms.

You can presumably invest from an amount of 100 dollars, the dividends are paid out flexibly via Liquid. The interest rate is 6.5 per cent per year. After five years, El Salvador will sell the bitcoins financed with the bonds and pay the owners an extra dividend from the assumed price increase.

The role of Bitfinex and Tether

In addition to Blockstream, exchanges Bitfinex will also help create and market the bonds. iFinex – the parent company of both Bitfinex and Tether – “is tasked with bringing its years of experience in operating a digital asset exchange,” the exchange said on its website. iFinex will, among other things, help El Salvador “create and implement appropriate and balanced laws, rules and regulations on cryptocurrencies.” One can assume that these rules will be rather light.

iFinex is expected to get a licence from the government of El Salvador, through which it will bring the sale of El Salvador’s bond to the platform. “The government has promised to work intensively with the platform as it prepares to market its bond.”

The idea behind this is also, Blockstream argues, “to pave the way for other liquid security tokens, like the Blockstream Mining Note (BMI) or Exordium (EXO), to be listed on a regulated stock exchange in El Salvador.” This stock exchange will presumably be run by Bitfinex, which will also free the exchange from its woes with regulation. If El Salvador becomes home to Tether as well, the irony would be perfect: a country where the dollar is the official currency, and therefore highly dependent on the US Federal Reserve, inherits a company that prints dollars. The second US central bank would thus be, one could say, in El Salvador.

Or, as Samson Mow paraphrases the president of El Salvador: “This will make El Salvador the financial centre of the whole world. It is a huge step. Imagine it doesn’t stop at one bond, but there are 10 bitcoin bonds, 20 bitcoin bonds. “

Thousand Questions

The audience greets Bukele’s plans with loud applause. The broader bitcoin scene also receives them mostly positively. Some people complain that Bitcoin is pandering too much to politics and accuse Bukele of being a tyrant whose comparison to Alexander the Great is mainly evidence of megalomania.

But there has been little criticism of something else: Is Bukele selling off his country for Bitcoin? Is he deliberately making it a refuge for companies like Bitfinex, which can hardly get a proper licence elsewhere but will soon be able to run a stock exchange in El Salvador? Is he risking the state’s finances for a marketing stunt by Blockstream in order to make the otherwise rather orphaned Liquid Sidechain, which has largely failed in the market, a success after all? Is he not reading too many wishes from the lips of Bitcoiners worldwide with Bitcoin City, while the city becomes a money grave that brings in no taxes but only costs the rest of the country? Isn’t he betting the future of El Salvador too much on Bitcoin with his Bitcoin investments? Could a long Bitcoin bear market lead the country to ruin one day?

Such questions are numerous and legitimate. On the other hand, one can also ask: Does it take a brave person to take the first step to create something big? Will El Salvador become the Switzerland of Latin America if Bukele’s plans work out? Will Bukele attract enough capital into the country through Bitcoiners so that they don’t even need to pay taxes to profit anyway? Is El Salvador the only country in the world to escape the destructive logic of dollar inflation? Is it even the other countries that, in their blind loyalty to the central banks, sell off their country to inflation?

One can give the most controversial answers to these questions. Only the future will provide a decision. All that is known today is this: El Salvador is making history. Again.

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