El Salvador President Nayib Bukele wants to build a Bitcoin city. Wearing a backwards baseball cap, the leader of the Central American country announced the plans at a party celebrating the end of a week-long Bitcoin conference. The country will be issuing a US$1-billion bond, using Victoria-based Blockstream’s Bitcoin-based Liquid Network, half of which will go toward the allocation of Bitcoin, with the other half to build out energy and mining infrastructure in the region.

What’s a “Bitcoin city?”: Bukele wants to build it along the Gulf of Fonseca near a volcano, which could provide energy for both the city and Bitcoin mining. He plans to build the city in the shape of a circle, or coin, with a massive Bitcoin symbol in a plaza in the city centre.

The city would be free of income, property and capital-gains taxes, according to the announcement, with a 10 per cent value-added tax being the only tax-based source of funding for construction and services. 

Why build a Bitcoin city?: In September, Bukele made El Salvador the first country to accept Bitcoin as legal tender. The move by the financially troubled nation has been beset by problems and protests, however. Identity thieves also targeted government Bitcoin wallets loaded with US$30 worth of the cryptocurrency that were distributed to residents. But the Bitcoin law is attracting entrepreneurs with wealth and big ideas. Buying at least US$100,000 worth of Blockstream’s Bitcoin bonds will qualify investors for citizenship applications. Blockstream chief strategy officer Samson Mow said at the announcement that he believes El Salvador is on track to become “the financial centre of the world” and “the Singapore of Latin America,” thanks to its bold Bitcoin moves.

Rival crypto cities: Dabbling in cryptocurrencies has become something of a trend for cities. Miami, New York City and Austin have their own digital tokens, which have a similar function to the proposed El Salvador Bitcoin bond in that they fund urban projects while providing a return to investors. Miami’s mayor set off a trend earlier this month of U.S. mayors declaring they would take their paycheques in Bitcoin. Vitalik Buterin, the Russian Canadian inventor of Ethereum, wrote about innovative uses of cryptocurrencies by cities in October. (Buterin has also criticized components of El Salvador’s Bitcoin law.)

Blockstream at the centre: Nothing like El Salvador’s Bitcoin experiment has ever been tried before, and Blockstream appears to be playing a key role in it. The Canadian company predicts a 146 per cent yield on the Bitcoin bond at maturity in 10 years, based on the bullish assumption that the price of the cryptocurrency will increase 35 per cent year over year from its current price of just above US$56,000. Whether that prediction turns out to be right or wrong, one thing is certain: Bitcoin isn’t just an internet curiosity anymore, with the fate of a nation hanging in the balance.