The ‘Bitcoin City’ Fantasy
This past weekend, El Salvador President Nayib Bukele announced plans for the world’s first “Bitcoin City.” The municipality will be set up like a tax haven for wealthy crypto investors – no income, property, capital gains or payroll taxes, only a 10% value-added tax (VAT) – and pay for its keep partially by net-zero, volcano-powered bitcoin mining. Construction will be financed primarily by a $1 billion bitcoin bond issued on Blockstream’s Liquid network, a Bitcoin sidechain. Here’s how that may play out.
Bd. Buenos dias. A stream of sunlight filters in from the eastern window in the luxury co-op that I’ve taken up residence in. The building, like many others in “Bitcoin City,” which is situated on the Gulf of Fonseca at the southeastern tip of El Salvador, erupts from the ground like a lightning bolt – a jagged architecture in reference to one of the city’s primary benefactors, Jack Mallers’ Zap. There’s a remote control to lower the shades, but the batteries died ages ago and they’re hard to replace. Bitcoin is a battery, they said.
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Today is the dedication ceremony of the Chapel of Jimmy Song, named for the bitcoin educator and patron saint of cowboy hats. It’s a modern church that towers above Satoshi Square, the central-most point of the city. From its bell tower, it’s said, you can make out the shadow of Solana Seastead, an experimental techno-kingdom floating 21 miles off the coast. We’re at war.
Announced at the height of 2021′s “supercycle,” Bitcoin City is now half the age of the eponymous Bitcoin network. It’s the first and most developed crypto city, which isn’t saying much. Construction has been scattershot and slow going – more of a result of the competing interests of the municipality’s primary backers than of its unique financing. But we’re learning on the fly. The bitcoin bond, immediately graded “junk,” actually paid for itself – early investors are still getting a coupon payment.
What to build? Where to build it? An overriding commitment to the ideals of decentralization and self-sovereignty, and a lack of faith in the local government’s ability to allocate resources effectively, meant it was up for markets to decide. But finding consensus over the use of scarce resources is hard when the rules aren’t hard-coded. There’s plenty of money, but limited space and no zoning laws.
Sure, there was a general architectural plan – a giant “b” bisects the city – but each building is a fiefdom of its own. People like it that way. Bukele’s government spent the proceeds of the $1 billion bitcoin bond to buy land and finance a conjoined, geothermal bitcoin mining facility and power station, but then the city mostly “decentralized itself out of existence.” That is, except for the state-run pet hospitals (it’s fine to throw the “Trojan horse” ruler a carrot).
Promised residential areas, shopping centers, restaurants, “everything built around bitcoin,” we live with what the market provides. Some things are prioritized. Housing is either high-end or tiny, stacked hexagonal pods. There’s a McCafe on every block. It’s probably easier to buy a second passport than groceries. When the digital economy is paramount, and the population mostly globe-trotters, not many businesses can remain going concerns.
Walking down the main thoroughfare of Bitcoin Boulevard, you’ll see holograms of Alexander the Great, Tony Robbins and Adam Back. There are a lot of figures who contributed to the city’s founding. A virtual projection of Bukele flickers outside City Hall, a neoclassical building cut out of orange and black stone. You can scan a QR code, deposit a satoshi or two, and he’ll tip his signature white baseball cap. Thanks for investing in the future.
The whole idea of bringing in institutional dollars was shut down after Moody’s downgraded the country. The only firms willing to buy distressed sovereign debt were the true believers – but as Blockstream’s Samson Mow said onstage at the “Feel the Bit” conference in 2021 – there are plenty of whales. But they all want a return on their tax-free investments.
Although Bukele said, “Bitcoin City is committed to free and equal access to everything,” in practice that’s a little less true. Ideological libertarians may be willing to build a public library, but they’re less committed to public health care. The transient population, the limited VAT taxes actually collected and the lack of buyers for Salvadoran sovereign debt mean the country is living under austerity.
I may sound pessimistic, but that’s only because you’re still living with the fiat mindset. A truly fair economic system recognizes that inflation is the greatest sin, that taxation is theft and that governments are hedonistic machines with a monopoly on violence. An economy based on scarce money makes sense for a world with limited resources, contrary to the last century of American hegemony.
The startup cities that have been founded over the past odd decade present a new way for organizing the world. They treat citizens as customers, and what customers really want is a tax haven. It’s game theoretical, it’s inevitable, it’s as sure as the sun will set in the West.
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