When Samson Mow, architect of the “Bitcoin Bond,” announced that the charter town had adopted a bitcoin standard, many watched in confusion 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 still being part of a nation-state.
Joel Bomgar, the president of Honduras Próspera Incorporated (the private company behind the creation of Próspera) sat down virtually with Bitcoin Magazine for an interview where he called Próspera “a free city that has adopted bitcoin as legal tender.” Bomgar chose these words specifically because the city isn’t just about bitcoin, it’s about freedom. Bitcoin happens to be the tool par excellence to achieve economic freedom.
Speaking of economic freedom through the adoption of bitcoin as legal tender, one might think of El Salvador doing the exact same thing at the nation-state level. However, the scale of Próspera is much smaller and the choice to use bitcoin as legal tender is a choice, not a requirement. El Salvador’s critics have challenged El Salvador’s adoption process, and while we won’t discuss those differences here today, it’s 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 legal tender?
Explore Prospera
In the paradise landscape of Roatán – a tropical island in the western Caribbean off the coast of Honduras’ Northern Corridor – Próspera has entered into a charter agreement with Honduras guaranteeing self-governance for its residents for 50 years. This agreement can be renewed and allows the charter city to create its own civil law, regulatory agencies and oversight committees, and to act largely as an independent jurisdiction with its own taxation under some restrictions, including that the city of Próspera must adhere to the Honduran. constitution, international treaty and penal code.
Image sources: Bombar
Outside of these parameters, Próspera has its own constitution of sorts as well as a legal code of over 3,500 pages. However, Próspera currently only owns hundreds of acres of land on the island of Roatán, which means that the Honduran Zone for Employment and Economic Development (ZEDE) will initially rely heavily on digital residency through ePróspera. , the company’s digital governance platform, as it gains more ground 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 multitude of revenue streams that can be used to purchase more land. Of these revenues, 12% must be returned to the Honduran government and Próspera keeps the rest. There is no money target that must be met in terms of remittance to the Honduran government, which prevents Próspera from having skewed incentives to tax or charge fees for its citizens. The Free City can also raise funds at any time, which it has already successfully done to the tune of $60 million.
Moving aside, let’s discuss the next big question.
How is Bitcoin recognized as legal tender?
Taxation. At least, that’s how bitcoin was initially recognized as legal tender. Taxes in Próspera include: 5% personal income tax, 2.5% sales tax for goods and services, 1% corporation tax and land value tax from 1 %. That’s it.
There are no other taxes (not even capital gains taxes) levied within Próspera. This allowed residents and businesses to transact in whatever currency they saw fit, making bitcoin a de facto legal tender, if they so chose. However, Próspera took a step forward in May last year and issued a resolution for the acceptance of bitcoin and other cryptocurrencies as legal tender. The resolution states that, in order to use bitcoin, the amount of bitcoin used must be equivalent to or greater than the value denominated in USD or Honduran lempira at the time of the transaction.
“Próspera is the world’s most advanced governance platform that unlocks unlimited potential for its residents and users,” Bomgar told Bitcoin Magazine. “Because it is the most innovative currency and store of value, Bitcoin plays an important role in this endeavor. Just as Próspera enables residents to live, work and build their future without friction, Bitcoin allows them to transact and store value in an accessible and frictionless way.
Additionally, Próspera has strengthened its regulatory authority for issuing Bitcoin bonds. Currently, the plan is to mirror the Bitcoin bond issuance currently underway in El Salvador. To do this, a platform like Bitfinex or Blockstream would issue tokens on a Bitcoin sidechain like the Liquid Network, representing the value of the bonds. The framework for bond issuance is still not yet solidified, but Próspera has the freedom to be a charter city that allows for rapid regulatory movement once a framework is presented.
Now back to the idea of a charter city or a “free city”. It is important to detail how these entities interact with nation states.
Are charter cities emerging from nation states?
No. At least not in this case. Mark Lutter, founder and executive director of the Charter Cities Institute, has written an essay explaining the lessons to be learned from the failure of previous charter cities, or specifically designated economic zones. In this essay, Lutter noted six elements necessary to ensure success within the confines of another nation, as charter cities will rarely have the militaristic courage to defend themselves against a sovereign aggressor.
The success of a charter city — such as Próspera — will depend on its ability to spur innovation in the region while paying its fair share to its host government, according to Lutter. Próspera seeks to achieve this level of innovation by offering companies a personalized regulatory framework.
For example, if you run a bitcoin exchange and there is a regulatory framework in Canada that best suits your business, you can copy and paste that framework into your Próspera-based operations. Not only can a company create a custom frame, but Próspera also makes a deal that the city can’t change the regulations on you later. As long as you operate within the previously mentioned legal framework, everything is customizable.
“What Próspera offers is not just a bitcoin-friendly tax environment, but regulatory certainty that allows people to build with bitcoin without worrying about whether a regulator will step in overnight and change all the rules,” explained Bombar.
This customization attracts businesses and investors to the area by allowing them to play a game of their own, and the lax tax regulations allow Próspera residents and businesses to determine the currency they use – which in this case is the bitcoin.
“Most governments haven’t found an elegant way to fit Bitcoin into their existing regulatory framework,” Bomgar continued. “We speak daily with members of the Bitcoin community around the world, and many of their concerns are the same. Their jurisdictions do not understand Bitcoin, so they are forced to use outdated regulations that prevent them from pursuing their dreams.
“We have found that this certainty is valuable to the Bitcoin community, and for this reason Bitcoin will be an important part of Próspera in the future,” Bomgar said.
Sounds good, right? A chartered city operating within the borders of Honduras that can enact its own civil and corporate practices and legislation as long as it remits and interfaces with its host government. But how is Próspera governed and is governance a risk factor?
The 51% attack on Próspera
Currently, all representatives are appointed by HPI, but as more and more people move to Próspera, there is a need to appoint elected officials based on population. Today, responsibility for the governance of Próspera rests in the hands of nine board members, five of whom will be elected once Próspera reaches a population of 100,000, while the remaining four will continue to be determined by Honduras Próspera Incorporated. (HPI), the company behind Prospera.
However, the board needs a 66% majority to accomplish any policy change, which would mean that in full operation, five elected officials would still need the participation of an HPI appointee to implement the actual change. Once the council is in effect, if the people of Próspera wish to initiate change for themselves, the public has the right to call a referendum. If the public does not agree with a particular decision, a referendum can be held within seven days and overturned by a 50% majority vote. After the first seven days, the public can still act against a policy change, but the voting requirements increase to 66% in order to repeal a law.
Additionally, once the 100,000 population target is reached, eligible voters can hold a referendum and change absolutely anything (as long as it works within the aforementioned Honduran framework) with a majority vote of 51 %. In fact, the residents could expel HPI, re-enter Honduras, or change the form of governance altogether. Próspera hopes this incentive structure will keep them aligned with the public in a way that will ensure that doesn’t happen.
Now with all that said we have still said very little about the town of Próspera so we would like to provide some resources, many of which we have used in writing this article, that can give greater detail of how Próspera is born, its plans for the future, and even some opinions that question whether or not the charter city is a good idea.
Additional resources detailing the structure and operation of the charter city include; the Journal Of Special Jurisdictions carrying out a case study on the governance of Próspera that details the inner workings of the charter city, plans for a Bitcoin Educational Programa detailed overview of facilities and governance such as health and education, a 44-page FAQ (including details on structure, governance, taxes, ZEDE structure, business models, policy, residency and more), as well as an interview with the founder and other resources in each of the links provided.
Indeed, Próspera is a capital enterprise embedded in a multifaceted structure that seeks freedom, but must also maintain a profit margin and a relationship with its host, Honduras. The complexities are many, but this charter city aims to remove the bureaucratic hurdles of the most sophisticated nation states and return the power of choice to its residents. Próspera’s acceptance of bitcoin is the first of many choices intended to provide true financial freedom and inclusion for its residents while providing a level of certainty 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 this reason Bitcoin will be an important part of Próspera in the future,” Bomgar told Bitcoin Magazine.