El Salvador’s Bitcoin City
A few days ago, on Saturday, El Salvador president Nayib Buekele announced his plans to construct a “Bitcoin City” near a volcano. El Salvador is one of the first countries to make Bitcoin a legal tender and make its own wallet. Since Bitcoin became a legal tender, all companies must accept it by law; however, you’re able to exchange it instantly for fiat currency.
How will this be funded?
Bitcoin City will finance this project by issuing 1 billion dollars worth of bonds backed by cryptocurrency. The government of El Salvador will issue the bonds in partnership with Blockstream, a digital asset infrastructure company. The city will be powered by the Conchagua volcano through geothermal energy. The volcano is essential to the whole operation because the country will use it to mine Bitcoin. The city will have no taxes apart from added VAT on top of all products.
Bitcoin in El Salvador
To simplify Bitcoin adoption in El Salvador, a wallet was developed named “Chivo.” Chivo is a government-made and controlled crypto wallet that can be downloaded on your smartphone. The wallet is designed to be simpler than the traditional crypto wallets. The wallet connects with your bank so that it will be easy to swap between fiat and crypto. Chivo also has ATMs around the country where you can withdraw cash with your Chivo Wallet. The wallet is meant to support the main Bitcoin chain and Lightning, which will allow for fast transactions.
Chivo wallet has been criticized for its inability to withdraw Bitcoin. Once the crypto is in the Chivo system, it can’t be taken out, meaning it’s locked in the Chivo ecosystem. One way the people of El Salvador will be able to remove Bitcoin from Chivo would be to sell their funds on Chivo to another willing person for currency outside the system.
To increase the adoption of Bitcoin in El Salvador, the citizens that download the app will receive $30 worth of Bitcoin. However, there have been mixed responses since Bitcoin became legal tender. There have been protests in response. People went to the streets in thousands to protest Bitcoin, calling the president a dictator. The locals believe that this is an economic experiment that should not have been done in a third-world country where more pressing issues affect the majority of the population.
Another issue with El Salvador’s people have is that there have been a lot of electronic scams. People are afraid that the adoption of Bitcoin could lead to increasing the effectiveness of these scams.
Bitcoin could help El Salvador because they currently depend on money from outside the country. Many people from El Salvador who work outside the country often send a lot of money back home, which usually costs lots of money to do in fees. Sending crypto will cut down on these fees, therefore, allowing more money to be sent back – benefiting the country more. Money from outside El Salvador makes up somewhere around a quarter of the entire country’s GDP, so making sure more money makes it back to the country would be a positive.
Lastly, people are concerned that this would increase the gap between the wealthy and the poor. A large number of people in El Salvador do not have internet let alone a smartphone. So forcing businesses to accept Bitcoin while a large number of smaller business does not have the means to accept the payment will be another issue that would have to be dealt with.
Bitcoin City is the first of its kind alongside El Salvador law to make Bitcoin its legal tender. It is very likely that now we will start seeing projects like Bitcoin City sprint up worldwide thanks to the growth of cryptocurrencies.
With the rapid adoption of crypto, it might be overwhelming to newcomers. If you wish to find out how and why to invest in crypto, check our article where we help you get crypto and our article where we compare stocks and crypto.