Explained: What is El Salvador’s Bitcoin city?

El Salvador is the only country that recognizes Bitcoin as a legal currency. President Nayib Buke announced Saturday to a crowd of Bitcoin enthusiasts that he plans to build a city around the largest cryptocurrency Bitcoin.

The $1 billion Bitcoin Bond would finance El Salvador’s Bitcoin City. The city will be situated near a volcano along the Gulf of Fonseca.

Bukele’s government is counting on Bitcoin as a way to boost the country’s economy and attract investment. This assumes that Bitcoin prices remain on an upward trend. We will now explain Bukele’s plans for a Bitcoin-friendly city.

What is Bitcoin City? What will Salvadorans gain from Bitcoin city?

According to Reuters, the Bitcoin city will be laid out as the El Salvador president planned. It will look like a coin and will have a plaza in its center that will host a large Bitcoin symbol.

To take advantage of the country’s geothermal energy, the city will be built near Conchagua volcano. This will allow for cryptocurrency mining to generate electricity to both the city as well as the country. Cryptocurrency mining is an energy-consuming process that solves complex mathematical calculations every day to verify and add crypto coins into the Blockchain network.

It is worth noting, however, that El Salvador has already started a pilot Bitcoin mining operation at another geothermal power station near the Tecapa volcano.

Bukele says that residents of Bitcoin City won’t be required to pay income, property, capital gains, or payroll taxes. With foreign investment in mind, the city will be built.

Bukele stated that there will be residential areas, malls and restaurants in the Bitcoin city. Bukele also noted that the country would have access to “digital education, technology, and sustainable public transport.” “Invest here to make all your money.”

The value-added tax will be the only tax collected. Half of it will go to municipal bonds, and the remainder for maintenance and infrastructure. According to AFP, Bukele stated that there would be no property, income, or municipal taxes, and the city would emit zero carbon dioxide. The El Salvador president did not provide any timeline for the creation of the city.

Bukele revealed a $1 billion US “Bitcoin bond”-half ($500 million) would be used for energy and mining infrastructure. The rest ($500 million) will be used by the nation to purchase more Bitcoins.

Blockstream, a Bitcoin-focused company, will manage the issuance of these bonds. According to Blockstream’s CSO Samson Mow, the tokenized bond will be made available to users around the globe who will have the ability to invest as little as $100. “Since Blockstream’s Liquid Network is Blockstream AMP we are also able easily to accept investments as low as $100 to democratize the access to the bond.

Bondholders will receive dividends easily using the Liquid network’s tools. Blockstream, which is issuing the bonds, stated in a blog post that they believe the bond can accelerate hyperBitcoinization as well as create a new financial system based on Bitcoin.

“The Bitcoin Bond” is the beginning of a reformation in capital markets. It’s built on Bitcoin and layer-2 technology like the Liquid Network. Investment capital can now flow from anywhere in the world without any friction. Investors can receive dividends instantly with integrated cryptography to protect their privacy. Bonds can be traded 24/7 alongside other assets such as stablecoins using protocols that eliminate the need to trust the company issuing them.

What will the bond do for people?

Mow stated that El Salvador would eventually sell some of the Bitcoin used in bond financing to provide investors with an ‘additional Coupon’ after a five-year lock-up. Mow believes that Bitcoin’s value will continue to grow. He stated that this would make El Salvador the global financial center.

“El Salvador would sell crypto holdings after five year and pay an additional dividend to bondholders. Mow stated that this could be a huge win for the country with a yield of 6.5 percent.

According to Reuters, Mow stated that $5 billion in Bitcoin would be removed from the market after 10 bonds of this nature were issued. If 10 countries issue bonds, that’s almost half of Bitcoin’s market capital.

Mow suggested that if Bitcoin’s value at the five year mark reaches $1million, which he strongly believes, El Salvador ‘will buy Bitcoin in two quarters, and recoup the $500 million.