El Salvador, the first country to accept Bitcoin (BTC) as a legal tender, recently announced a relaunch of the Chivo wallet cap, which would fix the stability and scalability issues of the previous version. The new update welcomes the experience of the Central American country’s cryptocurrency, which has faced some challenges and harsh criticism in recent months. While most of the observer’s attention has been focused on aspects such as the use of hashish for cryptocurrency and the geopolitical implications of El Salvador’s legal status for Bitcoin, the country’s mining industry’s progress in realizing President Bukele’s vision has not been discussed recently. Here’s what the current outlook for El Salvador’s mining industry looks like.
In October 2021, with El Salvador already the first country in the world to adopt bitcoin, a key energy sector shared its optimistic view of the prospects for cryptocurrency mining in the country.
Daniel Alvarez, chair of the state’s executive committee for hydropower in the Lemba River, told reporters about the “unlimited possibilities” for generating energy through hydropower, solar, wind and tidal power plants, where “willpower” is the only ingredient needed to succeed. “We are not wasting resources that pollute the environment, we are not dependent on oil, we are not dependent on natural gas, on any non-renewable resources,” he said.
But the current energy capacity of El Salvador is quite modest. It is said that there are only two geothermal power plants here – one at the foot of the Tecapa volcano and the other in Ahuachapan – that actually contribute to bitcoin mining. Together, they generate just under 200 megawatts of electricity, and only one of them allocates 1.5 megawatts – the only number known to date – to bitcoin mining. Thus, it is clear that the ambitions of the management in El Salvador will require large-scale development of new facilities. They definitely seem to have some ideas in this department.
Giant Bitcoin City project
In November 2021, El Salvadora’s President Neb Bukele announced his plans to build a new Bitcoin City. The settlement will be built in the form of a coin at the foot of the Conchagua volcano, whose geothermal energy will be used to extract bitcoins. As Bukele envisioned, this should be the perfect combination of flashing neon lights and almost no charges:
“Residential areas, commercial areas, services, museums, entertainment, bars, restaurants, airports, ports, railways, everything is for bitcoin.”
In line with regional tradition, this ambitious construction project will be supported by a bold financial scheme – a billion-dollar bond, half of which will go directly to urban development and the other half will be invested in bitcoin. The bonds are designed for 10 years and the owners pay 6.5% per year. Any investor with a share of bonds worth more than $ 100,000 will be eligible for Salvadoran citizenship.
The scheme is supported by major players in the crypto industry. The Canadian blockchain technology company is responsible for issuing bonds in the form of tokenized securities on the Liquid blockchain, with Bitfinex listing them on its platform. According to Samson Mao, chief strategist at Blockstram, the annual yield on bonds by the end of the tenth year of the bond issue will reach 146%, and he predicts that the price of BTC will reach one million dollars. within five years. This would make El Salvador “the financial center of the world” and “Singapore in Latin America”.
Bitcoin’s transformation in El Salvador is fraught with many challenges: political setbacks against President Bukele and his initiatives, pressure from the International Monetary Fund and other international actors, and early problems with the implementation of Chivo. When it comes to plans for comprehensive improvement of the country’s mining infrastructure, there are also a number of obstacles.
The announcement of Bitcoin City sent El Salvador’s current fiat-denominated bonds plummeting and prompted a series of questions from investment experts, chief among them: “Why would you buy Bitcoin-backed El Salvador bonds when you can only buy Bitcoin?” Some point out that the country already has a history of failed charter city plans, as well as the fact that the Conchagua volcano, which is to supply the city with energy and BTC mining, has recently shown remarkable seismic activity.
Even worse, some critics claim that El Salvador’s overall energy profile does not offer much potential for cryptocurrency mining. One problem is that the country still has to import around 20% of its energy, mostly from Honduras and Guatemala.