a Look at the World’s First Full Crypto Economy


El Zonte, also known as “Bitcoin Beach,” operates the world’s first full crypto economy.
Its founders broke down their plans for a 40-acre tourist village aimed at the crypto community.
They also shared their thoughts on the future of crypto adoption in El Salvador and worldwide.
The surf town of El Zonte is billied as a “small coastal community” in southern El Salvador. But in recent months, it’s gained a much more emblematic moniker: Bitcoin Beach.Nearly three years ago, when founder Mike Peterson was first approached by an anonymous donor with an idea to incorporate bitcoin into the local economy, he couldn’t have predicted the crypto’s future influence.But on the back of El Salvador’s revolutionary adoption of bitcoin as a legal currency last September, what started as a tiny grassroots experiment in El Zonte has now snowballed into one of the world’s first bellwethers of a future dominated by blockchain.From ‘grassroots’ beginnings to a 40-acre tourism villagePeterson — who, according to business partner Michael Cobb, is nicknamed the Godfather of Bitcoin in El Salvador — told Insider that he’s followed bitcoin since its infancy, waiting until 2016 to officially invest. He realized the potential benefits of broadly adopting the cryptocurrency when he moved to Latin America in 2005 and experienced firsthand the struggles of accessing his overseas assets.In those days, with the majority of stores lacking bank accounts and therefore not accepting credit cards, Peterson recalled that the easiest ways to move money were to physically bring cash on the plane or to make daily trips to the ATM. So when the donor reached out, he jumped at the chance to help the community “bypass a lot of the friction in the existing system” by turning El Zonte into a bitcoin hub.Peterson first began the initiative by paying the younger population of the community in bitcoin and onboarding local businesses. The critical point of the project, he said, was when crypto tech company Athena Bitcoin placed El Salvador’s first bitcoin ATM in El Zonte, which hugely enhanced the

liquidity

of the currency.”It started really impacting the DNA of the community, specifically of the young people,” Peterson said. “Once they started saving in bitcoin, it opened this whole new world up to them that they could actually save and accrue real wealth, that they could build businesses around this, that they could start working for tech companies that are overseas and be paid in bitcoin.”

Paying the younger generation in bitcoin paved the way for its acceptance in El Zonte.

ECI Development

The idea of a bitcoin-focused housing community first emerged from the long-term plan Peterson had originally proposed to the donor.”The goal was that this would carry momentum forward and create its own energy,” he explained. “That once the donor’s funds had been used — it would keep going forward, it would still be sustainable.”At the June 2021 Bitcoin Conference in Miami, Peterson met Michael Cobb, the co-founder and CEO of real-estate company ECI Development, which specializes in Latin American properties.Peterson immediately recognized the firm because of its advertisements for homes in Nicaragua priced in bitcoin, and the two soon developed plans for a 40-acre “sustainable tourism village” to be built on Bitcoin Beach.The village will be composed of 400 to 450 homes at multiple price points ranging from $150,000 to $1 million. Cobb predicts that as much as 40% of the buyers will be El Salvadoran, while the rest will be foreign investors. While they’re still in the early permitting process, Cobb and Peterson plan to offer explicit discounts when buyers pay with bitcoin as opposed to a fiat currency.The ultimate vision, Cobb said, is to build a physical community where bitcoin and crypto enthusiasts can gather.”The bitcoin community is an electronic community, it’s a virtual community,” he explained. “But to be able to deliver a physical community that is geographically centered — to be able to deliver a physical place where the virtual community can get together and enjoy face-to-face interaction and develop the relationships that can only come from being with other people is powerfully satisfying.”

Hope House, a “shared workspace” on Bitcoin Beach.

ECI Development

With this project, Peterson aims to “become the standard-bearer for bitcoin transactions in real estate” by “ushering in a new level of comfort for the broader society to utilize bitcoin in their daily lives.” He also expects the tourism village to boost the local economy by injecting wealth and creating sustainable jobs as part of a burgeoning service industry.Many transactions in the community already take place via bitcoin, according to Cobb, such as paying for hotel rooms or buying goods like soda, coffee, or pupusas. Peterson estimates that 90% of families in El Zonte have transacted in bitcoin at least once, with the “majority” of them using it on a weekly or monthly basis.But keeping the incredible volatility of crypto in mind, how do the local businesses and ECI Development plan to mitigate

volatility

risks?It all comes down to the development of the El Salvadoran government’s “Chivo” digital wallets, which Peterson said allow for automatic conversion to dollars. Compared to money wire transfers, which Cobb calls “cumbersome and expensive,” cryptocurrency wallets are much easier to use and transactions are almost instantaneous, he said.

Bitcoin is accepted for a variety of goods in El Zonte.

ECI Development

Individual stores can choose whether to keep their profits in bitcoin or transfer immediately to dollars, with Peterson anticipating that the more risk-loving owners may hold bitcoin for speculative investing purposes. In terms of real estate, Cobb said that ECI Development will give investors the opportunity to pay all at once or over a series of deposits, which he’d then immediately convert to fiat currency to pay contractors and eliminate currency exchange risk.A trailblazer for global crypto adoption?When the El Salvadoran government first announced the legal adoption of bitcoin, Peterson recalled some broad concerns from locals.”It became a political issue,” he explained, citing fears that the government was “going to totally get rid of the dollar.” But since then, he said, concerns have eased as bitcoin transactions have become more popular across the country.There’s also been criticism aimed at the adoption of bitcoin in El Salvador, given the country’s extremely low internet penetration rates of 45%, according to a 2020 study by Microsoft and the Interamerican Development Bank.But Peterson and Cobb both called this criticism misunderstood, explaining that the 45% statistic was based on access to true internet

broadband

at home. In the developing world, people primarily access the internet through smartphones over cellular networks, said Peterson. When considering cell-service networks, they estimated that 70% to 80% of families had a smartphone with internet access.And even just considering the 45% figure, Cobb said that the number of people “who can enter a formalized financial system” has certainly increased, estimating that prior to bitcoin only around 20% to 25% of El Salvadorans had a bank account.El Salvador has set a precedent for its acceptance of cryptocurrencies, with the government announcing unofficial plans to provide investors with permanent residency and a fast-track to citizenship. According to Peterson, the government has also expunged most taxes on investments.”There’s no property taxes, or very, very low property taxes here,” he explained. “The government seems very, very focused on attracting people in this space because they know that they’ll bring jobs and investment with them.”Along with the official adoption of bitcoin, El Salvador President Nayib Bukele also announced plans to issue $1 billion worth of  bitcoin-backed “volcano bonds” with a 10-year maturity and 6.5% coupon rate. Part of the proceeds from the bond sales would go to finance a proposed launch of Bitcoin City, a “semi-autonomous city state with its own regulations, very low to almost no taxes, specifically targeting bitcoin companies and bitcoin investment,” said Peterson.”It’ll basically allow El Salvador to no longer need to go through the International Monetary Fund to borrow,” Peterson explained. “They’ll be able to borrow directly from the market,” including from wealthy crypto enthusiasts who aren’t normally bond buyers.If the initiative is successful, Peterson foresees other nations following El Salvador’s example, such as Cuba and Iran, which are both subject to US embargoes. An instrument of foreign policy, US sanctions are penalties levied against other nations that can place a substantial negative burden on their economies.Having alternate currencies, Cobb explained, will provide countries with financial freedom from US economic embargoes, as well as protection against global inflationary monetary policies. Countries like Iran have begun using bitcoin mining to evade US economic sanctions, and increasingly more countries are exploring central bank digital currencies to skirt the US’s global financial domination.”I think people are definitely underappreciating how large the geopolitical implications will be, as it frees countries up from needing to rely on the IMF,” Peterson said. In the long-term, he predicts legislative crypto adoption to be “detrimental to the dollar.”Speaking of the United States, Cobb doesn’t foresee the amount of bitcoin real-estate transactions “accelerating very quickly” in the US, given the lack of a “pressing need” because of existing alternative payment systems like Venmo and PayPal. In his estimation, it will take at least a decade before even 25% of real-estate transactions in the US are conducted in crypto. The US government will also try to “slow the adoption,” added Peterson, “to try to prolong the dominance of the dollar as long as possible.”But for developing nations, Cobb is “powerfully optimistic about the transformative nature of bitcoin.” He believes the work in El Zonte is just scratching the surface of the potential of cryptocurrencies.”For the most part, I think many, many people will be very positively impacted, have already been very positively impacted, and will continue to be because of this change,” he said.



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