In a bold move that could redefine the future of digital finance and urban development, El Salvador has announced plans to construct the world’s first Bitcoin City—a futuristic, tax-advantaged metropolis powered entirely by geothermal energy from a volcano. Spearheaded by President Nayib Bukele, the project marks a significant escalation in the country’s commitment to cryptocurrency, following its historic 2021 decision to adopt Bitcoin as legal tender.
The vision for Bitcoin City is both ambitious and symbolic: a circular urban layout inspired by ancient cities like Alexandria, complete with residential zones, commercial hubs, and an international airport—all running on clean, sustainable energy harnessed from the nearby Conchagua volcano.
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A Tax-Free, Eco-Friendly Financial Hub
Located in the eastern department of La Unión, Bitcoin City will operate under a unique fiscal model. The city will impose no income tax, property tax, or capital gains tax—only a 10% value-added tax (VAT) on goods and services. Half of this VAT revenue will be dedicated to servicing the bonds used to fund the city’s infrastructure, while the other half will support public services such as waste management and sanitation.
This innovative financing mechanism hinges on the issuance of Bitcoin-backed "volcano bonds", a groundbreaking financial instrument designed to attract global investors. The first of these bonds—expected to raise $1 billion—is structured as a 10-year instrument with a 6.5% annual coupon. It will be issued on the Liquid Network, a Bitcoin sidechain developed by Blockstream, enabling faster settlements and enhanced financial functionality.
Samson Mow, Chief Strategy Officer at Blockstream, emphasized that half of the bond proceeds will be used to purchase Bitcoin on the open market, effectively removing substantial supply from circulation. Over time, this strategy could exert upward pressure on Bitcoin’s price—a key component of the long-term investment thesis.
Funding the Future: How Volcano Bonds Work
The "volcano bond" concept is more than just a catchy name—it reflects El Salvador’s geographical and economic reality. The country sits on the Pacific Ring of Fire, giving it abundant geothermal energy potential. By tapping into this renewable resource, Bitcoin City aims to offer low-cost, sustainable power for both residents and Bitcoin mining operations.
Here’s how the bond model works:
- Investors purchase $1 billion in Bitcoin-backed bonds.
- 50% of proceeds buy and hold Bitcoin.
- After a five-year lock-up period, El Salvador begins selling portions of its Bitcoin holdings to deliver an additional yield to bondholders.
- If Bitcoin reaches $1 million per coin within five years (as projected), the government could recoup hundreds of millions in profit—further strengthening investor returns.
Once 10 such bonds are issued—totaling $5 billion—approximately $2.5 billion worth of Bitcoin would be locked away for years, potentially tightening market supply and influencing global price dynamics.
“This is going to make El Salvador the financial centre of the world,” Mow declared at the announcement event.
Urban Vision: A Modern-Day Alexandria
Drawing parallels to Alexander the Great’s legendary city-building legacy, Bukele envisions Bitcoin City as a beacon of technological progress and economic freedom. The city’s design will be circular, with infrastructure radiating outward from a central plaza shaped like the Bitcoin logo when viewed from above.
Planned features include:
- International airport
- Residential neighborhoods
- Commercial and entertainment districts
- Public parks and green spaces
- Integrated blockchain-based governance systems
The goal is not just to create a functional city but to establish a global hub for crypto entrepreneurs, developers, and digital nomads seeking a jurisdiction-friendly environment for innovation.
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Public Sentiment and Challenges Ahead
Despite Bukele’s enthusiasm and high-profile promotion—complete with all-white attire and a backwards baseball cap at the Mizata beach resort—public opinion in El Salvador remains divided. While Bukele enjoys strong approval ratings, many citizens remain skeptical about Bitcoin’s role in daily life.
Past attempts to roll out Bitcoin-related infrastructure, such as government-backed ATMs and the Chivo wallet, have faced technical glitches and public resistance. Protests erupted in 2021 over concerns about financial transparency, data privacy, and economic stability.
Moreover, critics question whether a city built on speculative assets can achieve long-term sustainability. Questions linger about land acquisition, environmental impact assessments, and the realistic timeline for construction.
Still, the government remains undeterred. Officials estimate that developing public infrastructure will require an investment equivalent to around 300,000 Bitcoins—a staggering figure that underscores the scale of ambition behind the project.
FAQ: Understanding Bitcoin City
Q: What is Bitcoin City?
A: Bitcoin City is a planned urban development in El Salvador designed to operate as a tax-incentivized, Bitcoin-powered city using geothermal energy from a volcano.
Q: How will Bitcoin City be funded?
A: Through Bitcoin-backed "volcano bonds," which will raise capital via global investors seeking exposure to both infrastructure growth and cryptocurrency appreciation.
Q: Will there be taxes in Bitcoin City?
A: Only a 10% VAT will apply; all other taxes—including income, property, and capital gains—will be eliminated.
Q: Is Bitcoin City already under construction?
A: As of now, no physical construction has begun. The project depends on successful bond issuance and regulatory approvals.
Q: Why is El Salvador doing this?
A: To attract foreign investment, promote financial innovation, reduce reliance on traditional banking systems, and position itself as a leader in blockchain adoption.
Q: Could other countries follow suit?
A: Potentially. If successful, Bitcoin City could inspire similar initiatives globally—especially in nations with strong renewable energy resources and progressive digital policies.
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The Road Ahead: Risks and Opportunities
El Salvador’s experiment stands at the intersection of technological optimism and macroeconomic risk. On one hand, it offers a radical reimagining of how cities can be financed and powered in the digital age. On the other, it hinges on volatile assumptions—most notably, sustained growth in Bitcoin’s price over the next decade.
Nonetheless, if even partially realized, Bitcoin City could become a living laboratory for decentralized governance, green energy integration, and crypto-based economic models.
As the world watches closely, one thing is clear: El Salvador isn’t just adopting Bitcoin—it’s attempting to build an entire city around it.
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