How to Build a City from Bitcoin


Step one: Find a volcano (like maybe the Conchagua volcano in El Salvador). Step two: use the volcano's geothermal energy to power bitcoin mining. Step three: Use the cryptocurrency to fund the project.

It’s true - El Salvador will soon be home to the first city built on cryptocurrency, which will be located in the south-eastern region of La Unión. The current city plan promises to be quite people-friendly, with the citizen being the central focus of its design. This means it will be partially free of cars, with large pedestrian areas, cycle lanes built on all the roads, and a light rail network. Plans have been made for an airport, seaport, and an express train to connect to neighboring cities. The city center will be circular and bisected with a giant ‘B’ to represent the shape of bitcoin.

According to President Nayib Bukele, the city will sustain itself with its bitcoin mining operation and it will include everything from residential and commercial areas, entertainment, bars and restaurants, public transportation, and essential services. Half of the revenue gained from cryptocurrency mining will build up the city, while the other half will keep it clean. Meanwhile, the municipality will be set up like a tax haven for wealthy investors. There is no income, property, capital gains or payroll taxes. The only tax is a 10% value-added tax.

No date has been set in stone for the project to be finished yet. But, supposedly construction will begin in 2022 and it will cost an estimated 300,000 bitcoin. Though the city, in theory, will pay for itself, construction will be funded by a $1 billion bond issued by a Bitcoin sidechain, Blockstream’s Liquid Network.

Although this news might sound intriguing to some, not everyone is so excited about it. El Salvador recently became the first country to make bitcoin a legal tender, and protests have begun to erupt ever since. Some fear that cryptocurrency could bring instability and inflation to the country because of how it tends to fluctuate significantly.

El Salvador has taken a few steps to encourage its citizens to use bitcoin as it moves forward with its crypto city project. To start, just a couple of months ago, the government released a digital wallet app to deliver $30 in bitcoin to all its citizens, with hundreds of new cash machines installed across the country. Now, all businesses located there are legally required to accept the cryptocurrency as a form of payment. But this didn’t go so smoothly - the rollout of the $30 was glitchy, and protests broke out that day when the price of bitcoin crashed and fell by 20%. Some protests have included setting fire to the new cash machines.

It’s difficult to predict what other hurdles will pop up along the way, but El Salvador is placing great trust in its Conchagua volcano to take care of funding this operation, powering the entire process with geothermal energy. In order to do this, a system will extract hot groundwater and convert it to steam, powering turbines to generate energy for computers to make the complex calculations required to mine bitcoin. Cryptomining requires an impressive amount of energy, so much that some countries’ entire electrical consumption can’t compare. A quarter of El Salvador’s electrical grid is already generated by geothermal energy, so this idea didn’t come out of nowhere. Roughly 20 active volcanoes serve as harvesting sites for electricity in the smallest - and most densely populated - Central American country. A prototype for the crypto city was built at the base of Tecapa volcano just last month, where 300 computers are working day and night to verify transactions and turn geothermal energy into bitcoin.

Supporters of the project insist the devotion to clean energy produced by geothermal is perhaps its biggest perk. Brandon Arvanaghi, a bitcoin mining consultant, claims that bitcoin mining incentivizes the expansion of renewable energy production by providing high demand for cheap power. At this time, the promise for cheap power would have to involve a subsidy, as electric costs to households and businesses in El Salvador are already above the global average. Luis González, public policy director, said if cheaper, renewable power is available, it should go to the country’s citizens first, not bitcoin mining.

Although resources that typically damage the environment will not be used - no oil, no natural gas - geothermal energy production still impacts the environment surrounding the area, and the carbon footprint will still be massive. Subterranean heat could impact the local habitats, and aquifers could become contaminated at geothermal sites, a dangerous risk to take when El Salvador is the Central American country with the least access to water as it stands. Most bitcoin mining operations take place in colder climates where it’s easier to keep the machines cool, another obstacle the tropical country will have to overcome.

Though we’re not far off from several other countries accepting Bitcoin as a legal tender, no other crypto cities have been planned just yet. But who knows? Maybe this experiment will start a trend if it succeeds.