El Salvador plans to build world's first tax-free 'Bitcoin City'

It will be built near the Conchagua volcano to make use of geothermal energy to power the city as well as Bitcoin mining

El Salvador President Nayib Bukele speaks at the closing ceremony of Bitcoin Week, where he announced the plan to build the first 'Bitcoin City' in the world. Reuters

In a rock concert-like atmosphere, El Salvador President Nayib Bukele announced that his government will build an oceanside “Bitcoin City” at the base of a volcano.

Mr Bukele used a gathering of Bitcoin enthusiasts at the weekend to launch his latest idea, much as he used an earlier Bitcoin conference in Miami to announce in a video message that El Salvador would be the first country to make the cryptocurrency legal tender.

A bond offering would happen in 2022 entirely in Bitcoin, Mr Bukele said, wearing his signature backwards baseball cap. And construction would begin 60 days after financing was ready.

The city will be built near the Conchagua volcano to take advantage of geothermal energy to power both the city and Bitcoin mining – the energy-intensive solving of complex mathematical calculations day and night to verify currency transactions.

The government is already running a pilot Bitcoin mining venture at another geothermal power plant beside the Tecapa volcano.

The oceanside Conchagua volcano sits in southeastern El Salvador on the Gulf of Fonseca.

The government will provide land and infrastructure besides trying to attract investors.

The only tax collected there will be the VAT, half of which will be used to pay the municipal bonds and the rest for municipal infrastructure and maintenance. Mr Bukele said there would be no property, income or municipal taxes and the city would have zero carbon dioxide emissions.

The city would be built with an eye on foreign investment. It will include residential areas, malls, restaurants and a port, Mr Bukele said. The president also spoke of digital education, technology and sustainable public transport.

“Invest here and earn all the money you want,” Mr Bukele told the cheering crowd in English at the closing of the Latin American Bitcoin and Blockchain Conference being held in El Salvador.

Bitcoin has been a legal tender in El Salvador alongside the US dollar since September 7.

The government is backing Bitcoin with a $150 million fund. To incentivise Salvadoreans to use it, the government offered $30 worth of credit to those using its digital wallet.

Critics have said the currency’s lack of transparency could lead to increased criminal activity and that the digital currency’s wild fluctuations would pose a risk to the holders.

Bitcoin was originally created to operate outside government-controlled financial systems. Mr Bukele said it would help attract foreign investment to El Salvador and make it cheaper for Salvadoreans living abroad to send money home to their families.