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Crypto millionaires building their own cities in Central America

According to the Salvadoran newspaper El Faro, one of the most prominent suitors was Brock Pierce. As chairman of the Bitcoin Foundation, a nonprofit set up in 2012 to promote the cryptocurrency, Pierce spearheaded the attempted transformation of Puerto Rico into a cryptopia—a tax haven for crypto millionaires that would somehow solve the economic woes inflicted by the country’s debt crisis and the devastation caused by Hurricane Maria. 

Recent news reports suggest that soaring real estate prices constitute crypto’s major impact on Puerto Rico to date. Grand promises to rebuild the island’s economy on the blockchain have fallen by the wayside. Today, mugshots of cryptocurrency investors including Pierce decorate Puerto Rico’s capital city, captioned “This is what our colonizers look like.” 

Undeterred, Pierce is eager to replicate the Puerto Rico experiment elsewhere. Bitcoin Foundation delegates have met with representatives from El Salvador, Honduras, Panama, Ecuador, and Guatemala in the past year. (The Bitcoin Foundation and Pierce didn’t respond to interview requests.)

“I’m quite bullish on what’s happening in Latin America,” says Peter Young, managing director of the Free Private Cities Foundation and a self-described “Bitcoin maximalist.” “You’ve got lots of smaller nation-states that are looking for solutions and are willing to try new things.”

Young’s foundation supports the development of so-called private cities around the world. His organization has encouraged the Salvadoran government to run Bitcoin City on a private governance model, placing it in corporate rather than public hands. Government officials have been receptive so far, says Young. The organization has reportedly pitched the same idea to the Brazilian government.

Meanwhile, a coterie of Bitcoin advocates have become close advisors to Bukele. These include Volcano Bond architect Samson Mow, who recently left his role as CSO of the blockchain technology company Blockstream to promote Bitcoin adoption to nation-states. Journalists and crypto investors Max Keiser and Stacy Herbert also appear to have become part of Bukele’s inner circle. 

While polls indicate that Bukele enjoys huge support in the country, some Salvadorans are rattled by the influence foreign crypto investors appear to be exerting over the president. They expressed indignation upon seeing Keiser, Herbert, and Mow fly over the Bitcoin City site in a military helicopter—and again when Mow tweeted plans to draft new laws for the Volcano Bonds before anyone in the Salvadoran government did so. Mow has since tweeted that Bukele endorses his bid to become mayor of Bitcoin City.

Free for all

For an idea of what a corporate-run Bitcoin City might be like, look to a burgeoning project called Próspera, supported by the Free Private Cities Foundation in Honduras. While it’s not explicitly billed as a crypto community, a heavy emphasis on the crypto industry and the backing of heavyweight Bitcoin investors place Próspera in the same ideological milieu—a fusion of crypto evangelism and libertarian credos.

Próspera (Spanish for “prosperous”) occupies a small enclave on the Honduran island of Roatán. The developers have been handed the chance to model a society from scratch, including its own health, education, policing, and social security systems.

Honduras amended its constitution in 2013 to allow the creation of special economic zones managed by corporations and operating largely outside the country’s legal and regulatory oversight. The resulting enclaves are known in English as Zones of Economic Development and Employment (ZEDEs, pronounced “zeh-dehs”).

The decision was based on American economist Paul Romer’s proposal for charter cities—a type of special economic zone in an existing state but managed by another nation’s government. Considered one of his more outlandish ideas, they reflect his theories about how to promote foreign investment and alleviate inequality. Honduran ZEDEs are among the first tests of this concept, though Romer has held talks with some other governments.

Romer collaborated with the Honduran government at first, but they parted ways following disagreements over how his idea was being implemented. (Romer didn’t respond to a request for comment.)

Próspera, which broke ground in 2020, plans to implement ultra-low taxes, outsource services typically managed by the public sector, establish an “arbitration center” in place of a court, and charge an annual fee for citizenship (either physical or e-residency) that involves signing a “social contract” the company hopes will discourage misbehavior.

When I visited the site in February, a central office was one of the few completed buildings. There was no private Próspera police force, but on the front desk was a number for Bulldog Security International, a private security company engaged by hotels on the island that consider the local police force inadequate. A pair of two-story buildings housed office workers. The rest was largely a construction site, although a residential tower block is underway.

A rendering of the future Próspera shows apartments that appear to take inspiration from the shells of the island’s indigenous conch—soft curves in pearly coral, cream, and glass. A strip of white sand separates the apartment block from the gentle lap of the Caribbean Sea.

The businesses most likely to be drawn here are those keen to escape regulation in their own countries—Próspera’s chief of staff, Trey Goff, highlights medical innovation, health tourism, and just about every facet of the cryptocurrency industry. 

“There’s an automatic degree of overlap with the crypto industry and what we’re doing,” he says. “Because they see themselves as at the forefront of financial innovation, and we want to enable that.”

MICHAEL BYERS

Some people who work in tech and crypto have already set up in the jurisdiction remotely through its e-residency program. Businesses can freely transact in whichever cryptocurrency they choose, and five have been approved for use at the government level. 

Próspera’s advisors include Oliver Porter, founder of Sandy Springs, Georgia—until recently a fully privatized city in the US that Próspera’s outsourcing model will mimic. So far, Próspera says, Silicon Valley venture capitalists and private investors have put $50 million into the project, with another $100 million fundraising round underway. 

The amount raised so far includes money from billionaire Peter Thiel, venture capitalist Marc Andreessen, and investors Roger Ver and Balaji Srinivasan through Pronomos Capital. Pronomos Capital told Bloomberg in 2018 that it had discussed setting up semi-autonomous cities in countries including Ghana, Honduras, the Marshall Islands, Nigeria, and Panama.

Broken links

If you continue along the road that leads to Próspera, you’ll soon encounter a village of about 100 people called Crawfish Rock. Hunkered down in a piece of patchy woodland on the coast are a collection of wooden houses, painted in fading pastels and propped up on stilts. Chickens scratch in patches of weed sprouting under palm trees. It’s a long way from the glaring white of Próspera’s air-conditioned boardroom.

In Crawfish Rock, I’m greeted by Luisa Connor, head of the village’s Patronato, or community board. She belongs to the Garifuna community—descendants of slaves brought to the island by British colonizers in the late 1700s. Sitting in plastic chairs in her yard as her young daughter plays nearby, we discuss the pushback against Próspera, which has mutated from a community-led effort into a national repudiation of ZEDEs. Connor paints a picture of deception on the part of Próspera, saying it portrayed itself as a regular tourism development when it asked the community to sign a document of consent, promising that villagers would be offered the first jobs on the site.

Villagers soon discovered, however, that the project would be something quite different, and relations swiftly frayed. Connor says Próspera CEO Erick Brimen offered to buy Crawfish Rock outright; she declined on behalf of the village. But residents grew concerned that Próspera would seize their land to make way for its expanding city-state. 

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Land grabbing has a long, bloody history in Honduras. Successive governments have empowered companies to snatch land from peasants—resulting in conflict that in one area alone has led to more than 150 murders and disappearances since 2008.

Próspera executive Daniel Frazee says the company’s contract prevents it from expropriating land and that it plans to expand in directions where there are no settlements. But Connor says that after she declined Brimen’s offer, he told her the Honduran government might seize it. When asked about Connor’s comments, Próspera denied attempting to buy Crawfish Rock and said its charter and bylaws prevent it from receiving expropriated land from the Honduran government.

Islanders I spoke with expressed a fundamental objection to ceding pieces of Honduran land to the control of corporate entities. They “respect no government, no rules, no law; just a dream,” Rosa Daniela, a community activist involved in the campaign against Próspera, told me. “They don’t believe they are living in your country, because they want to start a new country.”

Eventually, Connor blocked Brimen’s number. The village no longer has any dialogue with Próspera, she says. Goff tells it differently: “We have very much focused on, from very early on, building strong community relations with that community.”

Since Próspera launched, the political climate has changed. Amid growing backlash against ZEDEs based on concerns like those raised at Crawfish Rock, the new Honduran president, Xiomara Castro, ran on a platform that promised shutting them down, putting Próspera’s longevity in question.

“We are just an experiment”

Ground hasn’t yet broken on Bitcoin City, but Conchagua Volcano is already home to several settlements, raising the specter of displacement, says Salvadoran economist José Luis Magaña—especially given that only about a fifth of the farmers in the region own the land they work on.

The government says the project is intended to provide jobs to the poor neighboring town of La Unión, but Magaña says socioeconomic disparities between the town and El Salvador’s bigger cities make gentrification the more likely outcome.

Unlike Próspera, Bitcoin City has the backing of the current government. But an influx of foreign investors and the displacement of local people could eventually stoke a similar backlash. Three days after Bitcoin City was announced, El Salvador passed a new law that would allow the government to expropriate land for public use. 

To prevent speculators from driving up land prices, the exact location of Bitcoin City remains vague. But real estate companies from Europe, wealthy Salvadoran businessmen, and cryptocurrency companies have offered to buy the land that El Espíritu de la Montaña sits on from Diaz for three to five times the price he paid.

Diaz is adamant that he won’t sell: “This is a life project for me.” He supports Bukele and believes Bitcoin City will stimulate economic growth in the area, although he notes that people he knows in La Unión are concerned about being forced to move. 

Back in Honduras, researcher José Luis Palma Herrera sees ZEDEs and projects like them as a modern twist on the region’s painful history of corporate colonialism. “The promise of ending poverty and improving lives has been used to get citizens to accept these enclaves of corruption and exploitation,” he says. “However, most of the profits from the enclaves go outside the country, [with] no real development in the regions where they’ve been.”

Besides Próspera, there are three more ZEDEs in Honduras. Less radical private city projects are now underway in Malawi and the US. Ethereum creator Vitalik Buterin has been involved in talks with the Zambian government about setting up a crypto-powered special economic zone. 

“We’re trying to help create an entirely new kind of industry … the industry of building cities,” says Goff. He says he’d like to see a couple of hundred developments around the world one day—“bright spots of prosperity all working together to create a brighter future for humanity.”

Not everyone is sold on the dream. In Roatán, Rosa Daniela worries about the impact on her community and others like it. “They come to us, these adventurous guys, in the name of liberty,” she says. “They want to start with us; we are just an experiment. If they find success here, they will move to your country and other countries in the world.”

Laurie Clarke is a freelance technology journalist based in the UK


https://www.technologyreview.com/2022/04/20/1049384/crypto-cities-central-america/