El Salvador intends to build The Bitcoin City
The first-ever country to adopt Bitcoin as Legal Tender, El Salvador, led by president Nayib Bukele wrote history on 27h of September 2021. For a country that’s been fighting hyperinflation, this seemed to be the lifeline due to the digital assets' main feature, scarcity.
A legal tender is “a form of money that courts of law are required to recognise as satisfactory payment for any monetary debt”. This does not mean that that payment can only be received in a specific form, but that someone must accept the payment to settle the debt if chosen as a payment method by the debtor.
As part of Bitcoin’s adoption, the country introduced 3 initial measures:
• a collaboration with Jack Mallers and his company “Strike’ to introduce the combination of lightning network and Bitcoin to facilitate transfers across the border with fixed fees
• $30 worth of Bitcoin was offered to any person who signed up for the nation’s own wallet “Chivo”
• $150 million conversion fund that allowed stores and merchants to instantly use the Bitcoin they receive if they would rather hold USD instead
Following up from the pioneering ideas, El Salvador’s president announced on 20th of November 2021 a new project called ‘Bitcoin City”, a city built up at a base of a volcano backed up by Bitcoin. This revolutionary idea has the potential of attracting new investors and re-build the country’s economy due to the measure announced: o% income tax, 0% capital gains, 0% property tax, 0%payroll tax, 0% municipal taxes and 0% CO2 emissions.
To make all the above possible, El Salvador’s president intends of raising $1 billion via a “Bitcoin Bond”. The programme it’s announced to commence in March 2022 and it will be a 10-year bond plan with a 6.5% annual return paid via the Lightning Network. Half of the funds raised will be used to buy Bitcoin and the other half will be used to build Bitcoin-specific mining and power infrastructure.
The next measure proposed meant to incentivise Investors is the programme “Citizenship by Investment”. This has been sent to Congress for approval in February 2022 as part of a package of 52 reforms. The conditions to qualify for El Salvador citizenship are yet to be confirmed however the minimum amount available to invest should be $100.000 changed from the initial 3 BTC. The citizenship will not be granted straight away but after 5 years of residency for foreign investors and one year for citizens of Spain and Larin America.
Apart from the 0% tax benefits offered by El Salvador, having second citizenship is also considered an extra measure of security in the context of a Covid 19 Pandemic and the ongoing geopolitical war.
Regardless of the many benefits announced, IMF has started to apply pressure on the country to drop Bitcoin as legal tender. Since September 2021, El Salvador’s economy has collapsed even further due to Bitcoin’s price volatility and also the lack of understanding the population had on the cryptocurrency and how it could have been used.
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