The last half hour of Andrew Keys’ return trip from Manhattan to the ConsenSys office in Brooklyn, New York, was a transformative experience. The founding father of the Ethereum blockchain dreamed of how the blockchain could improve the world – from digitizing money to decentralizing the web – before stepping out of a subway car on a gray winter morning. Now he prefers to call from a tropical paradise.
Keys moved to Puerto Rico in January 2018, during a peak of the previous bullish moment in the crypto market. He was part of the group of early adopters of cryptocurrencies seeking to take advantage of the island’s generous tax incentives. It was a trend that once symbolized the excesses of the blockchain industry, a movement that took hold during the bear market and is now making a comeback.
Read this article in English .
The reason is as clear as the island’s waters: Puerto Rico is a tax haven. That’s true for everyone, but that territory’s non-interventionist focus on capital gains, income, and business taxes is just what pro-capitalists and state skeptics look for in a residence. Call it sympathy for cryptocurrencies, with the advantage of being able to keep your US passport.
Subscribe to Crypto Long & Short , our weekly newsletter on investing.
The latest avalanche of crypto migrants to the island is proof that the move means business. Pantera, one of the most followed hedge funds in the crypto segment, has moved to San Juan. So have CoinMint, a large bitcoin miner; SuperRare, a well-established non-fungible token (NFT) platform; and the legendary and powerful crypto duo of Amanda and Sam Cassatt, former ConsenSys executives turned marketing guru and venture capitalist, respectively.
Hay hombres de dinero, programadores freelance y quienes prueban suerte en el ultramoderno negocio de las apuestas de ETH (+0.57%). Coral DeFi —una plataforma de gestión de inversiones—, Dex Grid —una startup de energía descentralizada— y el protocolo de finanzas descentralizadas (DeFI) BarnBridge surgieron de la nada en Puerto Rico.
Y son más que bienvenidos: en 2012 Puerto Rico aprobó dos leyes, la Ley 20 y la Ley 22, destinadas a atraer a empresarios y corporaciones. La Ley 20 estableció un impuesto del 4% para las empresas exportadoras de servicios —consultoría de blockchain, por ejemplo— desde la isla.
The real attraction, however, is Law 22. Although officially part of the United States, the island has isolated itself from that country’s tax code and exempts its residents from capital gains taxes. This makes it the only place in the United States where investment, interest, and dividend income are not taxable. All you have to do is spend 183 days a year on an island known for its pearl-white beaches and dark rums (residing on a ship within territorial waters also works).
“I wouldn’t call it a loophole,” said Shehan Chandrasekera, CPA and co-founder of Column Tax. “I don’t think it is something hidden. Puerto Rico and other tax havens are commonly named places in the community of high net worth individuals. “
Numerous jurisdictions – many of them tropical paradises – compete for the treasure by offering low or no taxes. Some, like El Salvador, directly attract the community bitcoin (BTC, + 0.56%) . But only Puerto Rico, which is closer to Caracas than Miami, offers residents an easy way to maintain U.S. citizenship.
That doesn’t mean suits are found roaming the sandy shores – it’s all about crypto, after all. Even when Keys took the L train he wore jeans and a T-shirt. But the new immigration movement is more oriented to the corporate sector than the previous one, if only as a reaction to the past criticism of wanting to establish a “blockchain island” in Puerto Rico.
In 2017, former child star and presidential candidate Brock Pierce introduced the world to both the smart contract platform EOS and the idea of a crypto-house called ” Puertopia .” These latest plans caught the attention of the media, and for good reason: Pierce and his team bought hotels, churches, and even a former children’s hospital to house their crypto environment. There were plans to establish a city.
Although the wealthy have long exploited Puerto Rico’s tax evasion system, it was Pierce who really introduced the concept to the crypto world. “Brock continues to be number one, because of the number of people he has in his network, the amount of trips he makes and the influence he has in the community,” said Pedro Rivera, founder of Crypto Mondays, by phone from San Juan.
In exchange for paying very little taxes, these crypto-rich – mostly men, at least – would reinvest their capital in Puerto Rico. That has always been the implicit goal of any business-friendly tax policy, and with Pierce it became an explicit promise . And it became even more real after Hurricane Maria, which devastated the island’s already fragile economy and infrastructure.
Pierce, who has pledged to donate his multi-million dollar fortune in part to support his chosen homeland, launched on-chain and real-life rebuilding efforts. It is difficult to judge the impact of that work. Real money was spent, but it was not the revival heralded. (Pierce did not respond to multiple requests for comment for this story.)
Of course, the severe market recession – and later the global pandemic – thwarted many of the wildest reconstruction plans. But it was never clear what it meant to reinvent Puerto Rico’s digital economy. Or if you wanted.
“People don’t have electricity, electricity, internet … their roofs have leaks,” said Rivera, who emigrated from the Bronx in 2017. “They don’t care about crypto, bro.”
If the crypto wealth had any tangible effect on the island’s recovery, it was probably done on an individual level or it was too local to be noticed, he said. Rivera, for his part, claimed that he helped raise $ 27,000 to fund work on the roof of Poet’s Passage, a local landmark where weekly crypto gatherings are held. Recently, it closed a $ 100,000 funding round supported by the Crypto Monday community to give away a wallet preloaded with $ 10 in cryptocurrency to thousands of children from the non-profit organization Boys & Girls Clubs.
“I’ve seen a lot of Puerto Ricans who have made money in crypto by investing in it,” he said. But what about the companies in the sector and the creation of well-paid jobs for the island’s inhabitants? “We haven’t really been able to make that blossom yet,” he said.
For some, vaporware , tax evasion, the transformation of a monastery into a boutique hotel , it all comes down to one thing: exploitation. Canadian left-wing intellectual and writer Naomi Klein analyzed the situation and called it “crypto-colonialism”; Jillian Crandall, a researcher at the Rensselaer Polytechnic Institute, called it a perverse form of “disaster capitalism.” CoinDesk published a report wondering if Puerto Rico could survive being the “eternal playground,” the rough Latin translation of the term “Puertopia.”
“If it weren’t for the fact that Puerto Rico is a Commonwealth of the United States, the project [Puertopia] would look exactly like colonialism: the policy or practice of acquiring total or partial political control of another country, occupying it with settlers and exploit it economically. Wait… no, it’s still colonialism actually, ”wrote CoinDesk’s Bailey Reutzel in 2018 . It is a difficult legacy to overcome.
Creating a blockchain island
It had been four weeks of an originally week-long vacation in the Caribbean when Keiko Yoshino realized she didn’t want to leave. He flew back to Washington, DC, where he worked in the public sector, to pack up his belongings and tie up loose ends. She arrived in San Juan with two suitcases and a new title: Executive Director of the Blockchain Trade Association in Puerto Rico.
“If you had asked me in December, I would have said, ‘Bitcoin, that’s like imaginary money, right?’” He said. But in Puerto Rico everything fell into place, and he fell in love with technology and the island. “It is an environment. It’s the energy… It’s very different from what I expected, ”he said. “Here it is very different. Different values, different priorities ”.
Yoshino is not the first person to think of when talking about crypto and Puerto Rico. It is not rich in cryptocurrencies and it is not looking to create an anarcho-capitalist collective. He helped found the blockchain association to support the local crypto community and put his years of government experience to work. He pays his bills, but he doesn’t get rich.
But that doesn’t stop people from attacking her. “In the past I was on social media: they misspelled my name, they called me a crypto colonizer,” he said. As a newcomer to the industry, she considers the idea that blockchain startups are malevolent usurpers is as laughable as the idea that they are going to revolutionize the island shortly.
“That idea is disconnected from reality,” he says. At his day job he is organizing a conference for this winter. On weekends he plays volleyball. He mentioned a member of the association, Raincoat – an insurance company that is using blockchain technology to help disburse insurance payments after hurricanes. From his point of view, the tax incentive program has helped the country a lot, but not everyone agrees.
“It’s kind of sick how the corporations that are there to take advantage of the 4% export tax do absolutely nothing to improve the local economy,” said a crypto trader calling himself “PVKT” on Reddit and asked to stay low. your pseudonym. He moved there in 2019, mainly for tax benefits, before repatriating. Living in a resort town two years after Hurricane Maria, she faced itinerant blackouts that “were not very conducive to commerce.”
There was also the extreme poverty that could be seen: the concrete houses, the dilapidated infrastructure, the lack of water or basic services. It was difficult to square his lifestyle and that of those around him with the experience of the local population. “Much is changed by incentives. If the only thing you care about is money and nothing else, then it might be convenient for you, ”said PVKT.
JSON, a Twitter user by that pseudonym, also planned to move to Puerto Rico before facing a similar moral dilemma. “When I analyze it in depth, there are many things that are not desirable. Rich people move there but do little to contribute to the local economy. The people of the island are very friendly, but some feel that they are being taken advantage of, ”he said.
If there is a crypto community in Puerto Rico, it is likely that it has developed due to the principle of proximity. Most of the crypto expats I spoke to lived in the same neighborhoods of San Juan or Dorado, a wealthy coastal enclave. There are world-class restaurants where the hosts speak English and private schools to send their children to.
“What happens is that there is a large concentration of these people in small areas,” said Rivera. Although he lives in a predominantly Spanish-speaking neighborhood, he prefers to associate with the upper class. “We all go to the same places. There are not so many high-level places in Puerto Rico ”.
That’s not necessarily a bad thing: even if the rich get out of paying capital gains taxes, they still contribute to the state. Keys noted that it pays corporation tax, property tax, and sales tax. “There are countless taxes that people will continue to have to pay. Although potentially lower, ”he said.
At times, expats have faced more pressure for their decision to move to Puerto Rico than for gambling on decentralized internet money. But in a sense, moving abroad to escape the tax burden is similar to exiting the current monetary system through cryptocurrencies. Both are ways of leaving the state behind and trying to build an alternative system.
“No one is going to pay all those taxes,” Rivera said of the comparatively high tax bill that awaited him if he had stayed in the Bronx. “If you have the opportunity not to pay, it is not that our government needs the money, brother. They can print money whenever they want ”.