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El Salvador and the new Bitcoin city: Everything you need to know

You might know that El Salvador has sanctioned bitcoin to be its official currency. But, as per recent news, El Salvador has a plan to construct a new “Bitcoin City”. So, for the first time, the creation of a bitcoin city will take place. The city will be almost equivalent to a $1 billion bitcoin bond. President made the statement about the new bitcoin of El Salvador’s Nayib Bukele. This article will give you a basic overview of what the bitcoin city is all about and how it will work.

About the Bitcoin city in El Salvador

Once the complete financing process is ready, the building of bitcoin city will start within 60-days. After that, president Bukele’s new city will help El Salvador become the world’s financial centre.

According to a recent news report, the city will be located close to the Conchagua volcano. As per officials, the volcano will produce geothermal energy that will power the bitcoin city and the process of bitcoin mining. The geothermal centre will capture the heat from inside the earth’s surface. The heat will then create steam that will help the machine produce electricity.

What is bitcoin mining?

It is a process in which bitcoins are produced by using supercomputers. Miners have to solve complex and challenging mathematical problems to add bitcoin to blocks. As a result, the mining of bitcoins requires a high amount of energy. 

What do we know at present?

As per the latest reports and official statements, president Bukele has said that El Salvador plans to issue the bond by 2022. When the bond gets money, the half amount out of $1 billion will convert into bitcoins, and the remaining amount will find usage for infrastructure building. 

As per Samson Mow, the chief strategy officer of Blockstream, the new city will be powered by geothermal energy. The energy source will be the volcano. The new volcano bond will be the Dollar-denominated 10-year old bond that will also carry a coupon of 6.5%.

The coupon of 6.5% is quite below as compared to the 13.5% interest rate of El Salvador’s bond. In addition to this, different other bitcoin-backed bonds are also getting planned. According to Mr Mow, many countries will now lead the path laid by El Salvador. As per his speculation, this move by El Salvador will also push up the value of Bitcoin. Thus, El Salvador will make many profits by selling these currencies again. 

Currently, the lock-up value of the bond is five years. But, after five years, El Salvador can also start selling some of the bitcoins to give additional coupons to investors. The crypto exchange Bitfinex was declared as the book runner. The bond will get sold in $100 tranches to enable access. 

The bond will also be traded 24X7 like all other assets. As per reports, the bitcoin city will also have houses, stores, restaurants, and ports. People are also saying that the city will offer digital education and public transportation that won’t harm the environment. Currently, the government is supporting bitcoin backed by a $150 million fund. 

Bitcoin was created to operate outside the government-owned and operated financial system. But the El Salvador government has accepted the digital currency with lots of enthusiasm. As per a government official from El Salvador, bitcoin can reduce the cost of living for Salvadorans living in foreign nations who send money to their homeland.

What we don’t know yet

At present, it is not clear when the bond will find its launch the following year. El Salvador has no plan to buy the $500 million worth of bitcoins. 

In addition to this, the legal rights of would-be buyers are also not confirmed yet. Most government bonds are legal contracts. But the same may not be possible and feasible in this case. No one knows about the happening of new bonds when countries will default on the old and traditional bonds. The deadline for the repayment of $800 million is due in January 2023. In addition, there are speculations that El Salvador will get help from the International Monetary Fund to ease this problem. But the IMF has not made any confirmations and comments yet. Check their official website 5coins-5million to get more details. 

 

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