El Salvador’s ‘Bitcoin City’ is just another crypto fantasy

Such grandiose projects often overpromise – and the biggest impact is on locals

‘It’s the global south where poor and vulnerable communities can be let down by such promises’ (Getty Images)

There’s a bizarre fantasy popular in crypto circles known as the “Bitcoin Citadel”. The fantasy goes back to 2013, when Redditor Luka Magnotta uploaded a post as a time traveller from the future. He described his world as a wildly unequal dystopia, divided between bitcoin maximalists and their eternal no-coiner slaves. In his premonition, bitcoin early adopters reside in isolated citadels as kings, while everyone else suffers the social collapse outside.

Although meant as a nightmare vision of a future under bitcoin, predictably, Magnotta’s post was lauded by crypto enthusiasts. The Bitcoin Citadel connected to their libertarian dreams of cosseted bunkers and private enclaves, where fortuitous crypto speculators would be free to amass great wealth without doing any work, or paying any tax.

Now the crypto-savvy President Nayib Bukele intends to build an isolated “Bitcoin City” in El Salvador, with funding for the city coming from issuing a $1bn bitcoin-backed “volcano bond”. Half the funds raised will go towards buying more bitcoin. The other half will be used for infrastructure and bitcoin mining powered by geothermal power from the Conchagua volcano.

But El Salvador does not produce enough energy to meet its existing needs. The country imports 25 per cent of its electricity from fossil fuel power plants located elsewhere in the region. Bukele claims Bitcoin City will be carbon neutral, but the carbon footprint of the bitcoin network could be staggering because of it. It’s worth remembering that bitcoin’s carbon emissions can swell or shrink with its price.

According to Samson Mow, who is involved in the plans, for the city’s proposed funding mechanism to work out, the market price of bitcoin would need to rise to $1m after five years. But Alex de Vries predicts that even at $0.5m, bitcoin’s global emissions could be belching out 617m tonnes of carbon a year. National governments in China, India and Europe are already starting to intervene in bitcoin’s ram raid on the Paris Climate Agreement.

Bukele isn’t the first to seemingly overpromise on FinTech fantasies. Consider Blockchain City, supposedly being built by crypto-millionaires in the Nevada desert. Then there’s the Utah desert Crypto-kingdom of Bitcointopia, which as it turns out, doesn’t have any desert to speak of. To avoid land issues, the MS Satoshi was to be the world’s first floating citadel. That is no longer the plan.

But it’s the global south where poor and vulnerable communities can be let down by such promises. Facing a huge public debt crisis, the Caribbean island of Puerto Rico has become a hub for crypto developers, attracted by tax incentives and light-touch regulation. In the aftermath of Hurricanes Irma and Maria in 2017, bitcoiners started snapping up urban beachfront properties on the cheap, building exclusive libertarian enclaves, pricing out the locals and offering little in return.

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And think don’t get any more grandiose than Senegal’s Akon City, a $6bn smart city with its own purpose-built cryptocurrency, Akoin. The city is modelled on Wakanda from Marvel’s Black Panther comics –  but despite fireworks and fanfare, the site remains grassland, leaving locals wondering about their future.

My recent research suggests bitcoiners are drawn to poorer and vulnerable communities. I believe some crypto enthusiasts take advantage of economic instabilities, weak regulations, and access to cheap energy and other resources.

However, according to Samson Mow, bitcoin bond investors should weigh up the risks against all the benefits for the people of El Salvador. For crypto commentator, David Gerard: “Bukele and the bitcoiners each consider the other a sucker”.

But as with all the other failed attempts at building Crypto El Dorado, the biggest losers will likely be the locals.

Pete Howson is a senior lecturer in International Development at Northumbria University