Prospect Bitcoin Legal Tender Explained – Bitcoin Magazine
When Samson Mow, the architect of “Bitcoin Bond”, announced that the charter city had adopted a bitcoin standard, many were confused as this small town was largely unknown. Now Próspera is trying to show the world what it means to exist semi-autonomously from nation state control while it is still part of a nation state.
Joel Bomgar, president of Honduras Próspera Incorporated (the private company behind the creation of Próspera) sat down virtually with Bitcoin Magazine for an interview in which he described Próspera as “a free city that has used bitcoin as a legal tender.” Bomgar chose these words specifically because the city is not just about bitcoin, it is about freedom. Bitcoin happens to be the essential tool for achieving financial freedom.
When we talk about financial freedom by adopting bitcoin as a legal tender, a person’s thoughts may wander to the thought that El Salvador is doing exactly the same thing at the nation state level. However, the scale of Próspera is much smaller, and the choice to use bitcoin as a legal tender is a choice, not a requirement. Critics of El Salvador have challenged the El Salvador adoption process, and although we will not discuss these differences here today, it is important to note that the forms of adoption between Próspera and El Salvador are very different.
But what exactly is this free city, and how did it come to recognize bitcoin as a legal tender?
Exploring Prospera
Within the paradisiacal landscape of Roatán – a western Caribbean tropical island off the coast of the northern corridor of Honduras – Próspera signed a charter agreement with Honduras guaranteeing the board’s autonomy for its inhabitants for 50 years. This agreement can be renewed and allows the charter city to establish its own civil law, regulatory agencies and supervisory committees, and largely function as an independent jurisdiction with its own taxation under a few selected restrictions, including that the city of Próspera must comply with Honduras constitution, international treaty and criminal law.
Image source: Bomgar
In addition to these parameters, Próspera has its own constitution of a kind, as well as a legal code of well over 3500 pages. However, Próspera currently has only hundreds of acres of land on the island of Roatán, which means that Honduras’ Zone for Employment and Economic Development (ZEDE) will initially rely heavily on digital residency through ePróspera, the company’s digital management platform, while buying more land over time .
How will Próspera acquire more land? Taxes and other fees associated with being a resident or operating company in the city will generate a variety of income streams that can be used to buy more land. Of this revenue, 12% will be transferred to the Honduran government and Próspera will keep the rest. There is no target for money to be met in terms of money transfers to the Honduran government, which prevents Próspera from having skewed incentives to tax or levy taxes on citizens. The Free City can also raise money at any time, something it has already done successfully worth $ 60 million.
Revenue aside, let’s discuss the next big question.
How is Bitcoin recognized as a legal tender?
Tax. At least that’s how bitcoin was originally recognized as a legal tender. In Próspera, taxes include: 5% individual income tax, 2.5% sales tax for goods and services, 1% corporate income tax and 1% land value tax. That’s it.
There are no other taxes (not even capital gains taxes) imposed in Próspera. This allowed residents and businesses to trade in any currency they deemed appropriate, making bitcoin a de facto legal tender, if that was their choice. However, Próspera took a step forward in May last year and issued a resolution accepting bitcoin and other cryptocurrencies as legal tender. The resolution states that in order to use bitcoin, the amount of bitcoin used must be equal to or greater with the value denominated in USD or Honduras lempira at the time of the transaction.
“Próspera is the world’s most advanced management platform that unlocks unlimited potential for its citizens and users,” Bomgar told Bitcoin Magazine. “Because it is the most innovative currency and value store, Bitcoin plays an important role in this endeavor. Just as Próspera enables citizens to live, work and build their future in a low-friction way, Bitcoin enables them to act and store values in an easily accessible way. “
Furthermore, Próspera has expanded its regulatory authority for issuing Bitcoin bonds. Currently, the plan is to reflect the issuance of Bitcoin bonds that are currently underway in El Salvador. To do this, a platform like Bitfinex or Blockstream will issue tokens on a Bitcoin side chain like Liquid Network, which represents the value of the bonds. The framework for issuing bonds has not yet been determined, but Próspera has the freedom to be a charter city that allows for rapid regulatory movement when a framework is presented.
Now, back to the idea of a charter town or “free town”. It is important to detail how these entities interact with nation states.
Do charter cities leave nation states?
No. At least not in this case. Mark Lutter, founder and CEO of the Charter Cities Institute, wrote an essay that explained the lessons learned from failing former charter cities, or specifically designated economic zones. In this essay, Lutter noted six components needed to ensure success within the borders of another nation, as charter cities will rarely have the militaristic power to defend themselves against a sovereign aggressor.
The success of a charter city – like Próspera – will depend on its capacity to drive innovation in the region while paying its fair share to the host government, according to Lutter. Próspera seeks to achieve this level of innovation by offering companies a customized regulatory framework.
For example, if you run a bitcoin exchange and there is a regulatory framework in Canada that works best for your business, you can copy and paste that framework into your business based in Próspera. Not only can a company create a custom framework, but Próspera also enters into an agreement stating that the city cannot change the regulations on you down the road. As long as you operate within the limits of the previously mentioned legal framework, it can all be adapted.
“What Próspera offers is not just a Bitcoin-friendly tax environment, but regulatory security that allows people to build with Bitcoin without having to worry about a regulator turning around in a day and changing all the rules,” Bomgar explained.
This adaptation entices companies and investors to the area by letting them play a game they have made themselves, and the lax tax regulations allow the inhabitants and businesses of Próspera to decide the currency they use – which in this case is bitcoin.
“Most governments have not figured out an elegant way to integrate Bitcoin into their existing regulations,” Bomgar continued. “We talk to people in the Bitcoin community from around the world on a daily basis, and many of their concerns are the same. Their jurisdictions do not understand Bitcoin, so they are stuck using outdated rules that make it difficult for them to pursue their dreams. . »
“We have found that this certainty is valuable to the Bitcoin community, and for that reason Bitcoin will be a big part of Próspera well into the future,” Bomgar said.
Sounds good, right? A charter city operating within Honduras’ borders that can adopt its own civil and corporate practices and laws as long as it communicates and communicates with the host government. But how is Próspera managed and is the management a risk factor?
The 51% attack on Próspera
So far, all representatives have been appointed by HPI, but as more are actually moving to Próspera, there is a requirement to appoint elected representatives based on the population. Today, responsibility for the management of Próspera lies in the hands of nine council members, five of whom will be elected when Próspera reaches a population of 100,000, while the other four will continue to be determined by Honduras’ Próspera Incorporated (HPI) company behind Próspera.
However, the council requires a 66% majority to implement any policy change which would mean that five full-time elected representatives still need the participation of an HPI nominee to enforce actual change. After the council is in full effect, if the people of Próspera want to initiate change for themselves, the public has the right to call a referendum. If the public disagrees with a particular decision, a referendum can be convened within seven days and overturned by a 50% majority. After the first seven days, the public can still act against a policy change, but the voting requirements increase to 66% to repeal a law.
Furthermore, when the population target of 100,000 is met, eligible voters can call a referendum and change absolutely anything (as long as it operates within the aforementioned Honduran framework) by a 51% majority. In fact, citizens can kick out the HPI, go back to being part of Honduras, or change the form of government altogether. Próspera hopes this incentive structure will keep them in line with the audience in a way that ensures that this does not happen.
Now, with all this said, we have still said very little about the city of Próspera, so we would like to offer resources, many of them we used to write this article, which can give a greater detail of how Próspera came to be, its plans for the future, and even some opinions that challenge whether the charter city is a good idea.
Additional resources that describe the structure and operation of the charter city include; The Journal Of Special Jurisdictions conducts a case study on the management of Próspera which describes the charter city’s internal work, plans a Bitcoin education programa thorough overview of facilities and management such as healthcare and education, a 44-page FAQ (including details on structure, management, taxes, ZEDE structure, business models, policies, residence and more), as well as an interview with the founder and other resources within each of the specified links.
In fact, Próspera is a significant endeavor built into a multifaceted structure that seeks freedom, but which must also maintain a profit margin and a relationship with the host, Honduras. The complexities are many, but this charter city aims to remove the bureaucratic obstacles of most sophisticated nation-states and give back the electoral power to its citizens. Prospera’s acceptance of bitcoin is the first of many choices intended to provide real economic freedom and inclusion to its citizens, while providing a level of security that most people no longer feel about the state of their economy.
“We have found that this certainty is valuable to the Bitcoin community, and for that reason Bitcoin will be a big part of Prospera well into the future,” Bomgar told Bitcoin Magazine.
