Volcano-fueled Bitcoin City could be Bond’s villainy or the state of the art in 2021

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President of Salvador Nayib Bukele

Image: Presidency of the Republic of El Salvador

Here are some tips on unsolicited relationships: Find yourself a partner who loves you as much as Salvadoran President Nayib Bukele loves bitcoin. This may not be physically possible, as this man really loves his blockchain money.

Depending on your perspective, his recent performance was either historic or a completely wacky yet entertaining shot.

Bukele unveiled a plan last week that will see El Salvador, fresh out of bitcoin legal tender, potentially issue $ 1 billion in “volcanic bonds” that would be used half to buy bitcoin, the other half to build a Bitcoin city.

This libertarian paradise would have no taxation, with the exception of a value added tax, and would obtain totally clean thermal energy from a neighboring volcano.

No, this is not B-grade Bond film fan fiction – although it can certainly be available on the internet at large – it is something that is set to happen in 2022.

“This is going to make El Salvador the financial center of the world,” Blockstream chief strategy officer Samson Mow said on stage next to Bukele, as reported by Reuters.

Mow referred to the “game theory” surrounding the bond issuance and said bitcoin would hit the million dollar mark, allowing El Salvador to easily repay the 10-year bonds issued at 6.5%.

Before the hype takes over, it’s time for a dose of crypto-cynicism thanks to David Gerard.

“It is almost certain that if the Bitcoin City Project is even innovated, it will be a random disaster, incompetent but politically trustworthy cronies hastily fending off the most sloppy and dysfunctional nonsense,” Gerard wrote.

“If Bitcoin hits $ 1 million – as Mow is sure – the bond pays generously. If it doesn’t, Blockstream gets the ground. It’s a good deal – but not so sweet for El Salvador.

“Note that the actual use of Bitcoin by the people of El Salvador does not seem to matter to this plan. Just as well, given that Chivo is not working reliably.”

Gerard concludes that Bukele and the bitcoin crowd probably think each side is the biggest sucker, and both sides could easily lose. In the 2020s, everything goes wrong for everyone is a tough prospect to bet against.

Earlier this month, Tony Richards, a true Australian economist and head of payments policy at the Reserve Bank of Australia, posted some personal truths in a speech like the one people give only to the approaching retirement.

“Cryptocurrencies have no intrinsic value, typically have no issuer behind them, and rely on user trust in the software protocol that controls the system,” said Richards.

“While the term ‘cryptocurrency’ may suggest that it is a form of money, the consensus is that existing cryptocurrencies do not have the key attributes of money (that is why some people prefer the term “cryptoassets.”) As many observers have noted, they are rarely used or accepted as a form of payment (at least in everyday life), they are not used as unit of account, and their prices can be very volatile and therefore constitute a bad store of value.

Richards said distributed ledgers have a future, which could allow smart contracts to take off, but warned that proper decentralized peer-to-peer finance, as sold via cryptohype, was unlikely to emerge. because intermediaries would retain an important role, if only to get laymen to use the technology.

If regular users were less afraid to miss out (FOMO) and ignore fads, combined with the government’s crackdown on energy consumed by cryptocurrencies based on proof of work and the use of cryptocurrencies for money laundering and cleaning, Richards said he could consider a path where increases in the price of crypto play out.

No wonder bitcoin holders would be thrilled if El Salvador actually blocked its bitcoin volcano for at least five years, as planned. An extra layer of government bond scarcity would really help keep FOMO going.

Help fuel the fact that FOMO has been Senator Jane Hume, Australian Minister of Financial Services promoting blockchain.

“A recent Senate committee report indicated that an extraordinary 17% of Australians invest in cryptocurrency – it is an asset class that has captured hearts and minds, but beyond that – whatever you can think of that personally – it’s a technology that’s not going to go away very soon, ”Hume said happily in a speech last week.

Unfortunately for the minister, Richards had already pushed back this investigation and its claim a week before, along with the claim that 5% of Australians held Dogecoin.

“I have to say that I find these statistics somewhat implausible. I can’t help but think that the online surveys on which they are based might not be representative of the population,” he said.

“There are significant segments of the population – including the elderly, those who live in regional areas and those who do not regularly access the Internet – that online survey panels do not capture well; our experience is that it takes a lot of work to do a very good population survey.

However, Hume didn’t get discouraged and called on people not to be like those who decried new technologies like email, smartphones or the internet itself.

“Decentralized finance backed by blockchain technology will present incredible opportunities – Australia must not be left behind by fear of the unknown,” the senator said of a country that closed its borders in 2020 to its own citizens for fear of a virus. , and has had fear as the main driver of most of its despicable immigration policies since Federation.

Going against the grain of Hume’s rosy vision is the dose of reality served by those who recently hoped they could buy a copy of America’s constitution with ether. As Vice reports, many of those who contributed lower fund levels have found that the Ethereum blockchain’s user fee structure and high levels of gas to pay for transactions sometimes eat away at all the money intended. to be used for the purchase once it has been refunded. In one case, a user was left with an invoice to process after being reimbursed.

Vice estimates that about half of those who have contributed to ConstitutionDAO will see a large portion of their funds absorbed by gasoline costs.

As is the case with crypto, although this attempt to impact the real world has failed, the next one is likely to avoid some of these pitfalls and the state of the art of cryptography. cryptography continues.

It’s unclear if this may be good enough for the purpose, but it’s hardly more absurd than a low-tax economic zone fueled by a volcano in Central America and funded by bitcoin bonds.

Next year will show which one is able to materialize first, if any.

Aerial view of energy extraction at La Geo geothermal power plant on October 22, 2021 in Berlin, Usultan department, El Salvador. After declaring Bitcoin legal tender with the US dollar, the Salvadoran government is mining the cryptocurrency with 300 computers in a factory powered by the Tecapa volcano.

Image: Alex Peña / Getty Images ZDNet Monday Morning Opening

The Monday Morning Opener is our opening salvo for the tech week. Because we operate a global site, this editorial is posted on Mondays at 8:00 a.m. AEST in Sydney, Australia, which is 6:00 p.m. EST on Sundays in the United States. It is written by a member of the ZDNet Global Editorial Board, which is made up of our editors in Asia, Australia, Europe and North America.

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