In El Salvador, a volcano-powered Bitcoin City will be partially funded by 1 billion dollar government-issued, dollar-denominated, Bitcoin bonds via Blockstream’s Liquid Network, a sidechain of the Bitcoin-Blockchain.
The President of El Salvador, Nayib Bukele, remains optimistic about crypto, announcing the construction of an income and property tax-free Bitcoin City. The city’s construction will be funded by government bitcoin bonds issued through the Liquid Network and, later, value-added tax.
The president plans to launch the 10-year bonds in early 2022. Bondholders who do not have citizenship will have the issuance of citizenship expedited. The bonds will be locked up for five years and worth $1 billion, with a 6.5% coupon given to bondholders. 500 million dollars will be used to buy bitcoin, thereafter additional dividends would be paid to investors, following the sale of the bitcoin after five years. El Salvador will license Bitfinex as the book runner for the bond.
Bitcoin adoption maturing
The other $500 million will be used to develop infrastructure to energize bitcoin using geothermal sources in La Union in eastern El Salvador. The city will have a plaza that will appear as a bitcoin symbol when viewed aerially.
When bitcoin was made legal tender, it had supporters and detractors, and technical complications abounded on day one. The state now owns a minimum of 1,100 BTC. Merchants were initially sceptical of accepting the cryptocurrency for goods and services, with only 7% set up to receive bitcoin as of early October this year. McDonald’s and Starbucks were among the first merchants in El Salvador to accept the cryptocurrency.
Criticism of Bukele’s strategy
Rohan Grey, an expert at the Digital Currency Global Initiative, has been more critical of El Salvador’s strategy, indicating that Bukele used the country’s Bitcoin adoption mainly as a marketing stunt, while no specific things have even been worked out. These recent developments seem to paint a different picture though.
“Mr. Bukele is a young president trying to capitalize on a popular image. There’s great PR value in announcing something like this, even if you haven’t worked out all the details yet.” – Rohan Grey, Digital Currency Global Intiative Expert in an interview with BBC
He warned more generally that a country adopting a cryptocurrency as legal tender gives significant control to a network. According to him this network isn’t stable, doesn’t have responsible actors, and can’t offer a track record. Grey also doesn’t think it offers price stability or liquidity – which is central to a currency.