El Salvador To Build ‘Bitcoin City’, Powered By Geothermal

El Salvador’s Bitcoin odyssey continues, with the news that the country intends to build a brand new city, financed by government Bitcoin bonds.

And in something out of a James Bond script, El Salvador’s president Nayib Bukele said the city would be built at the base of a volcano in the country, where geothermal energy could be used to help power it.

In September it should be remembered, El Salvador became the first country in the world to accept Bitcoin as a legal tender, after the digital currency was officially adopted on Tuesday 7 September 2021.

Legal tender

Prior to its adoption, a survey in El Salvador revealed that nearly three quarters of the population there disagreed with their government’s decision to adopt Bitcoin.

In an effort to sweeten the deal, the El Salvador government allowed citizens to download a digital wallet app, which gave away $30 (£22) in equivalent Bitcoin to every person in the country.

However, due to the extreme volatility of Bitcoin, there was concern that any monetary value could be seriously impacted by a crash in the e-currency.

And this happened after the value of Bitcoin crashed the day that El Salvador officially adopted the e-currency.

Matters were not helped by technical glitches, server crashes, and even street protests at the move.

And protests continued to be seen on the streets, weeks after the adoption.

Bitcoin city

But President’s Bukele has now proposed a Bitcoin city that will be constructed around the Conchagua stratovolcano, and will apparently be circular to represent the shape of a large coin, the BBC reported.

The location would take advantage of the Conchagua volcano’s geothermal energy to power Bitcoin mining, he added.

President Bukele also announced that the city would be financed by government bonds that would be issued next year. He said construction of the new city would begin within two months of the bonds being issued.

He made the commitment whilst speaking in the coastal town of Mizata late on Saturday, the BBC reported.

President Bukele said the planned new city would “include everything”.

“Residential areas, commercial areas, services, museums, entertainment, bars, restaurants, airport, port, rail – everything devoted to Bitcoin,” the 40-year-old President said.

The president also reportedly said that no income taxes would be levied in the city, only value added tax (VAT).

He added that half of the revenue gained from this would be used to “to build up the city”, while the rest would be used to keep the streets “neat and clean.”

Controversial move

The approval by Parliament in June to back President Nayib Bukele’s proposal to embrace the cryptocurrency was controversial.

Indeed, the move surprised many, and the World Bank (the international lender to developing nations) refused to help implement it as legal tender, due to concerns over transparency and the environmental impact of Bitcoin mining.

In late June rating agency Fitch also warned of greater risks for banks due to the El Salvador law.

It said the move could open floodgates to money laundering, increase banks’ exposure to regulatory risks.

And central banks and financial regulators in many other countries have repeatedly warned of cryptocurrencies’ notorious volatility and said buyers should be prepared to lose all their money.

President Bukele however championed Bitcoin adoption as a way to help low income countries like El Salvador move from a largely cash economy, to a digital economy, where a person’s bank account is essentially their smartphone.

It should be noted that roughly 70 percent of people in El Salvador do not have bank accounts or credit cards.

The country replaced its its local currency, the colón, with the US dollar in 2001.

Historically the country had a mostly agriculture-based economy, but it has been riven chronic political and economic instability including coups. It continues to struggle with high rates of poverty, inequality, and gang-related violent crime.

Nowadays remittances account for more than 20 percent of El Salvador’s GDP, and incumbent services can charge 10 percent or more in fees for international transfers that take days to arrive and must be collected from a physical location.

Sky News reported that in the two months following the launch of the Chivo Wallet in September, Salvadorans sent roughly $32m home in remittances, representing about 2.5 percent of all the money sent home.