The “Digital Asset Issuance” legislation will also create a regulatory body and establish a legal framework for all digital assets.
El Salvador has passed a landmark law providing a legal framework for Bitcoin-backed bonds – known as the “Volcano Bond” – which will be used to pay the authorities and finance the construction of “Bitcoin City”.
The bill was issued on Jan. 11 with 62 votes in favor and 16 against and became law after President Bukele approved it.
The National Bitcoin Board of El Salvador announced the adoption of the bill on a Jan. 11 Twitter thread, noting that soon it will start issuing bonds.
According to the crypto exchange Bitfinex, which is the technology provider for the chain, the Volcano Bond – or Volcano Tokens – will allow El Salvador to raise capital to pay its royalty, paying for the construction of Bitcoin City and creating mining infrastructure. The volcanic explanation for the bond comes from the location of Bitcoin City, which is set to be a recycling center for crypto-mining powered by hydrothermal power from the nearby Conchagua Volcano.
Bitfinex says that the country will become a special economic zone similar to the one found in China, which will offer tax benefits, and crypto-friendly regulations, and stimulate bitcoin transactions for residents and it. The bond is intended to raise $1 billion for the country, half of which is earmarked for the creation of special economic zones.
Under the original plan, the benchmark bonds would be denominated in US dollars, have a ten-year maturity, and have an annual interest rate of 6.5%. Samson Mow, a Bitcoin activist who is involved in the development of the Volcano Token, told Cointelegraph that the end of the bill could help transform the country into a “major” financial center.
“The decision to pass the new Digital Securities Law and to allow new instruments like Bitcoin Bonds will help El Salvador to pay its existing debts and is a key factor in turning the country into a major financial institution of the world.”
The bill also includes regulations for all digital assets that are not Bitcoin, in addition to those issued in Bitcoin, and creates a new regulatory agency that will be responsible for enforcing security laws and providing protection against bad actors.
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