El Salvador's Zero Tax 'Bitcoin City'

The biggest crypto news and ideas of the day

Nov. 22, 2021

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Today's must-reads

Top Shelf

BITCOIN CITY: El Salvador is going to build an entire city based on the largest cryptocurrency by market value, President Nayib Bukele announced at Bitcoin Week in El Salvador. "Bitcoin City" will be located along the Gulf of Fonseca, draw power from a nearby volcano (to provide energy for both the city and bitcoin mining) and eschew income, property, capital gains and payroll taxes. Bukele also said El Salvador plans on issuing a $1 billion "bitcoin bond," a tokenized financial instrument developed by Blockstream denominated in U.S. dollars, on the Liquid Network.

MEANS TO AN END? Daniil Egorov, head of Russia's Federal Tax Service, mentioned cryptocurrencies as a potential means for tax evasion in an interview with a Russian news agency. When asked if he noticed any "innovative" tax evasion schemes recently, Egotoc mentioned crypto, adding the problem should be approached in a "systemic" way, however, he did not specify any details. According to the current law in Russia, cryptocurrencies are recognized as a type of taxable property.

INVESTMENT: Cryptocurrency lender Celcius Network has invested an additional $300 million for its bitcoin mining operations in North America, taking the total investment this year to $500 million. Celsius invested $200 million earlier this year in bitcoin mining equipment and equity of bitcoin mining firms Core Scientific, Rhodium Enterprises and mining pool Luxor Technologies. The crypto lender now has an operational mining fleet of about 22,000 bitcoin ASIC miners, most of which are Bitmain's newest generation of AntMiner S19 series.

INTRODUCING tbDEX: Payments giant Square released a white paper on Friday detailing a new decentralized protocol for exchanging digital and other assets known as tbDEX. The plan is to "[create] ubiquitous and accessible on-ramps and off-ramps" that preserve the option for people to stay relatively anonymous – for a price. Square CEO Jack Dorsy first floated the idea of this decentralized bitcoin exchange in August.

–Helene Braun

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Overheard on CoinDesk TV...

Sound Bites

"We're going to try and get this thing fixed before the end of the year. If not, in the next Congress for sure."

–Minnesota Congressman Tom Emmer (R) discussing the infrastructure bill's controversial crypto provision, on "First Mover."

What others are writing...

Off-Chain Signals

Crypto.com naming agreement paid for itself after coin surges (Bloomberg)
UK regulator investing $670,000 to train staff in crypto terrorist financing (Decrypt)
France's Crypto Blockchain Industries sells NFTs linked to DJ star Guetta, shares surge (Reuters)
China's exiled crypto machines fuel global mining boom (Financial Times)

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Putting the news in perspective

The Takeaway

The Fees on Ethereum Are Too Damn High

Hi, Will Gottsegen here. This past weekend, a crypto investor named Zhu Su fired off a series of tweets about the state of the Ethereum blockchain.

"Yes I have abandoned Ethereum despite supporting it in the past," he wrote. "Yes Ethereum has abandoned its users despite supporting them in the past. The idea of sitting around jerking off watching the burn and concocting purity tests, while zero newcomers can afford the chain, is gross."

Something worth considering before evaluating this claim is that Su's investment firm, Three Arrows Capital, is betting big on an Ethereum competitor called Avalanche. The value of $AVAX, the network's native cryptocurrency, recently surged to an all-time high, and so it's possible Su was just riding high in the moment.

That said, he may be right – at least about Ethereum's barrier to entry.

It goes without saying that accessing Web 3 is already somewhat arcane. It's not enough to just buy crypto on Coinbase's exchange. If you want to use dapps (decentralized applications), explore DeFi (decentralized finance) protocols, or get in on the NFT (non-fungible token) craze, you are going to need to master the ins and outs of unhosted wallets and token swaps. But even once you know all that, Ethereum still asks for fees, which – at this point in the development of the blockchain – can be shockingly high.

Minting an NFT on Ethereum will generally cost between $60 and $250, depending on the time of day and the stress on the network. The more users are competing to get their transactions in the chain's next "block," the worse the fees.

Fees can be way, way higher, too. I remember my shock, this past May, when I tried to swap about six cents' worth of ETH for 50 Pisscoin – an Ethereum-based token I was researching for a story – and was told I would need to pay an additional $616.10 for a transaction that might clear in about 40 minutes. If the transaction failed, as can happen often on crypto networks, the fee would be permanently lost.

And because every single "on-chain" transaction needs to be verified in the same way, with the same fee system, you are always at the mercy of the market. When you are working directly with the blockchain, you are losing money every step of the way.

Traders who donated to ConstitutionDAO – last week's crowdfund to purchase an original copy of the U.S. constitution at auction – collectively paid nearly 200 ETH in fees, according to on-chain data. That's around $850,000.

In the real world, people aren't used to paying that much for everyday transactions. Only a tiny fraction of the population, with the requisite knowledge of technology and money to burn, can even begin to explore Ethereum.

Crypto venture capitalist Chris Dixon – whose company, Andreessen Horowitz, is heavily invested in the Ethereum ecosystem – responded to Su by suggesting that the network is still in its infancy, and that infrastructure may eventually make things cheaper and easier to use (at the expense of security).

Sure. But for now, infrastructure is minimal. Polygon, a so-called "layer 2" scaling product built on top of Ethereum, is designed to make fees a little cheaper. But even "bridging" Ethereum-based tokens over to the Polygon network can be prohibitively expensive. Other networks, like Solana, are betting that users may just ditch Ethereum altogether.

As it's now set up, Ethereum is like a poker table with a high buy-in. The rich, with their ETH stashes, have the opportunity to get richer, capitalizing on the crypto gold rush and becoming familiar with these systems as early adopters.

Everyone else will have to wait for a cheaper option.

–Will Gottsegen

Sponsored Content

Monaco Planet: SocialFi Puts Agency Back in the Hands of Users

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For crypto markets to grow in size and participants, there needs to be increased trust. For those who aren't crypto native, the landscape can be bewildering. There are also dangers from scammers and spammers. It's hard to fully protect users from these bad actors, but one way is to create a venue where they can get accurate information and not get played – a dedicated public opinion forum and social media platform for crypto communities.