A band of mega-rich crypto enthusiasts are settling on the Caribbean island. Is this the birth of a digital democracy or a tax haven for blockchain brats?
On a Tuesday night at the Cannon Club, a piano bar in old town San Juan, Puerto Rico, accompanied by sparkling margaritas, grilled octopus and a giant white parrot called Campeche, I am inducted into the future. I'm with a group of cryptocurrency enthusiasts, thousands of whom have moved to Puerto Rico in recent years, as they plot the contours of the new world they hope to build. From the YouTuber Logan Paul to the former film star Brock Pierce to some of the biggest early investors in ethereum, these settlers have been lured to the "Island of Enchantment" by low taxes and long beaches. If you thought the champions of Silicon Valley were utopian and self-assured, try hanging out with the next generation.
"A lot of us really do think technology can save the world," says Evan Arteaga, 38, who has lived in Puerto Rico for four years. Arteaga is a former cannabis entrepreneur who made a small fortune in crypto and is now helping to launch a tech-enhanced art and community centre in old San Juan. "This is the inevitable evolution of the capital marketplace. I do think this is the future, we just need to keep going," he says.
Amanda Cassatt, 31, is the founder of Serotonin, one of the first marketing firms dedicated to working with crypto companies. She is also a central figure in the Puerto Rico crypto movement, having been "early" into ethereum. "Decentralise everything," she says. "Currency is just the beginning. Decentralise the energy markets. This is the embryo stage of a new economy."
People like Cassatt and Arteaga are the tip of a spear that is driving the digital economy towards its next phase: Web3, blockchain and the metaverse. These terms may be familiar to you by now, or they may not yet. Either way, you will be hearing them more and more, because (yet) another digital revolution is under way that will likely touch all of our lives, whether we want it to or not.
So what do all these highfalutin phrases actually mean? What will this revolution look like? And what kind of a society are its proponents trying to build? If anywhere has the answer, it's Puerto Rico, home to one of the world's first cryptocurrency communities. So I am here to find out more.
The old town of San Juan is not an obvious place to reimagine the future of humanity. Dotted with crumbling Spanish colonial mansions and shabby-chic cocktail bars, the tropical port regularly plays host to hordes of fat-bottomed American tourists, who in peak season are disgorged daily from giant Floridian cruise ships in search of fridge magnets and piña coladas.
In 2012, though, the government of Puerto Rico, which is an unincorporated territory of the United States, passed a series of acts offering tax incentives to any American investors who want to relocate. Drawn by these whopping breaks, year-round sunshine and the dream of a new society, as many as 10,000 well-heeled US migrants, mostly from the world of finance, have arrived in the Caribbean territory. An estimated 3,000 of the arrivals are newly minted cryptocurrency millionaires.
These affluent newcomers to Puerto Rico have bought up gorgeous properties by the beach, patronised a clutch of expensive new restaurants and private schools, and poured millions of dollars into philanthropy and development projects to help an impoverished island community still reeling from the effects of Hurricane Maria in 2017. Heavyweight crypto players such as the hedge fund Pantera and the risk management firm Darma Capital have relocated to Puerto Rico.
The new migrants spend their weekends kiteboarding, boating and hiking through Puerto Rico's lush forests, sometimes with magic mushrooms for company. Many live in chichi gated communities such as the Ritz Carlton Reserve in Dorado, which has a five-acre spa, a water park and a designer golf course. Property prices have spiked accordingly, and three-bedroom houses on the Dorado beachfront are being listed for US$19 million ($28.9 million).
These crypto-utopians — cryptopians? — have brought their messianic dreams with them. In recent months Puerto Rico has hosted cryptocurrency conferences and set up beginners' courses for locals to learn the basics of digital currencies. Perhaps most important, there are the foundations of a new Web3 economy being built by coders, investors, consultants, artists and engineers who hope to replace the social media giants that currently dominate the internet with a far more decentralised model built using blockchain technology.
What is Web3? The original internet, or Web 1.0, so the narrative goes, was about reading and getting information online, posted by a few creators. Web 2.0, which arose in the mid-2000s, brought a content revolution, where users were able to post their own videos, blogs and music on social media. But the big tech platforms — Twitter, Facebook, Google — harvested this data and used it to take control of the advertising industry, making a fortune in the process. In Web3, its proponents claim, digital currencies and tokens will allow creators to own a small piece of their own communities. It will be decentralised and more democratic, because the data will belong to the people again and not the giants in Silicon Valley. That's the plan at least.
Yet is it a utopia or a dystopia that these digital dreamers are building on this troubled island? And what do the locals think? Critics of the Puerto Rico project, and there are many both on the island and in the US media, suggest that the migrants are rootless digital plutocrats — greedy neocolonial tax exiles enacting a fantasy by feasting on Puerto Rico's desperation.
"They are here dreaming of a utopia because they have so much money in their pocket, when people here can't even dream about next week," says Ana Teresa Toro, a local writer and teacher. "It's like a playground for them, the stakes are so low. It's like they are having a rehearsal for a play in our living room."
Advocates of the project argue this influx of wealth and talent could transform Puerto Rico — a place where in 2019 some 57 per cent of children were living below the poverty line — into a Singapore or Hong Kong of the Caribbean: a low-tax, high-enterprise financial capital for the new world. "The stars are aligned for a prosperous, brighter future for Puerto Rico," says Pierce, a prominent local crypto investor. "Most countries and cities have to invest massively to get the intellectual capital that exists in Puerto Rico. It is the intellectual capital of the financial future."
These disagreements have made Puerto Rico a testing ground for the entire cryptocurrency project. Is this really the dawning of a new world? Or are these just faux-idealists whipping up a giant digital soufflé that claims to help the poorest in society while actually making themselves filthy rich and leaving the rest of us vaguely baffled?
Perhaps the most notable thing about spending time among the cryptopians is how relentlessly optimistic they all are. Here on planet Earth we spend our time worrying about things like the cost-of-living crisis, gas prices, healthcare costs and the crumbling welfare state. Pessimism is rife and we seem to be fighting over ever smaller slices of the pie. But what if you could simply grow the pie? What if you could just use technology to create new wealth in an instant?
Gmoney, 39, a former Wall Street trader turned crypto "whale", describes this as an "abundance mindset". He moved to the island in 2017 and has since become a guru in the world of NFTs, the digital ownership tokens that have stormed the art market this year. Gmoney, who prefers to go by his online avatar rather than his birth name, has signed big-money deals with Adidas and Visa for NFT collections. He describes himself as a "futurist, disruptor, ape".
He distinguishes between our world and the world of crypto in terms of scarcity versus abundance, pointing out that on Wall Street one person's gains are another's losses. "I used to work in finance, which is a zero-sum game," he says. "In order for me to eat, somebody has to go hungry. But in crypto I started benefiting without others losing out. You realise there is enough to go around. So I started helping people. Then they went on to help other people."
Scarcity, says Gmoney, has been a near-constant in human history, leading to endless competition and war. But abundance allows the milk of human kindness to pour out. "From an abundance mindset, you think people are inherently good. Yeah, the money I've made is great. But it also makes me much more bullish on humanity."
Gmoney believes that tech innovations such as blockchain can continue to unlock huge amounts of "new value" by lowering the cost of transactions and making access to money easier. For example, in today's world, if you had a £1,000 painting it would be difficult to secure a small loan on it, because it wouldn't be worth anyone's while. But using blockchain technology you could, in theory, just post your digital ownership token of the painting as collateral and receive the loan in a matter of seconds. "Tools that are only available to the richest people in the world will now be available to everybody," he says.
Sound a little Pollyannaish? In reality, analysis has shown that 0.01 per cent of bitcoin owners hoard more than a quarter of the coins in circulation, so things are a good deal more abundant for some than for others. But you too might be wildly hopeful if you'd become absurdly rich by making 50 times your money speculating on a new currency invented in a flash.
To explain how we got to this point, with instant millionaires building Caribbean utopias and crypto.com sponsoring the next football World Cup, it might help to go back to the beginning.
Bitcoin, the first big cryptocurrency , was invented in 2008 by a mysterious figure (or group) called Satoshi Nakamoto. As with all cryptocurrencies, bitcoin functions without a central bank or trusted third party to verify it. Instead, all bitcoins are recorded on a blockchain, a decentralised database that acts as a ledger for the currency and is maintained co-operatively.
By 2017 a single bitcoin was worth about £2,500 ($4,800). Since then its value has exploded due to a flood of new buyers. Despite many ups and downs, bitcoin is currently trading at over £36,000 ($69,000). There are now more than 18,000 cryptocurrencies in existence, although bitcoin and its younger sibling ethereum make up more than 70 per cent of the market between them.
Cryptocurrencies have generated a staggering US$3 trillion in new wealth over the past decade, and the beneficiaries of this gold rush are starting to push their assets into art, property, sport and beyond. This exponential growth has also created a new class of billionaires and multimillionaires overnight. People like Changpeng Zhao, the Chinese-Canadian founder of Binance, a cryptocurrency exchange, whose net worth is already estimated to be roughly the same as Mark Zuckerberg's. This is some of the "abundance" that Gmoney is referring to.
Cryptosceptics, and there are many, will tell you this looks awfully like a giant Ponzi scheme, built primarily on hype and speculation. Much of it could still evaporate of course, and more government regulation is looming, but there is considerable institutional power invested in digital money, from banks to nation states, and what began as bitcoin has already evolved into far more than just cryptocurrency.
Advocates of blockchain technology believe it can revolutionise the wider economy. In the current digital economy transactions usually have an intermediary, be it Spotify, eBay, Uber or Airbnb. In a Web3 world we would interact directly with one another. Cassatt views this as an enormous opportunity and says the Web 2.0 era — with tech giants such as Facebook and Google collecting data on their users and then ruthlessly monetising it — is over. "People have cottoned on to Web 2.0," she says. "They are tired of being the product, of being treated like commodities."
The implications of all this go well beyond just social media. In an economy run according to these principles, energy, for example, could be traded between individuals on the blockchain instead of going via the central grid. Goodbye energy giants. Loans could be secured using collateral posted on the blockchain, and then simply traded between individuals who have capital and those who need it. Goodbye mortgage lenders. Head spinning yet? This is just getting started. Blockchain technology is also being used as the foundation for the metaverse, a fully immersive and interconnected digital world whose economy could be run using cryptocurrencies.
Many are highly sceptical, though, of this elaborate vision. "It's spin all the way down," according to Evgeny Morozov, a scholar (and often critic) of the internet. Morozov describes Web3 as "a map in search of a territory", a plan for the world that doesn't actually have a home or any real means of implementation. "There is no 'there' there," he argues in an influential recent essay that accuses Web3 proponents of "left-washing" their greed through empty progressive slogans.
So is Puerto Rico a Web3 paradise in the making, or just a giant crypto gap-year project hiding its greed and hedonism beneath a mask of altruism? Why are these migrants really here?
"Tax is the incentive for being here, let's be honest," Arteaga says. "You're saving 40 per cent capital gains tax. But it's also a beautiful place. We have the beach. We have the mountains. This is my dream."
Puerto Rico could certainly do with a helping hand. Hurricane Maria was the worst storm in almost a century, bringing winds of 250km/h and causing an estimated US$90 billion in damage. The entire island lost access to power and regular outages are still common today. Until March Puerto Rico was officially bankrupt and the island faces constant brain drain to the US mainland, where stars of Puerto Rican descent, such as Jennifer Lopez, Lin-Manuel Miranda and Bruno Mars, have an outsized cultural impact. (Lopez has actually invested in a fintech company that works with bitcoin, so we may end up calling her "Jenny from the Blockchain".)
The crypto migrants coming the other way may not pay much tax, but many say they are keen to help the island in other ways, and they all contribute a compulsory stipend of several thousand dollars to local causes each year. There is much talk of "giving back", though also plenty of in-fighting.
The hippyish, crusading Pierce is a particularly divisive figure. A child actor who appeared in The Mighty Ducks, his fortune in 2018 was estimated at between US$700 million and US$1 billion by Forbes, thanks to some savvy early bitcoin investing. Having already run for US president in 2020 on a blockchain-forward platform, he is now planning to run for the Senate in Vermont this November.
Pierce and his wife Crystal's fingerprints are everywhere in Puerto Rico: he recently bought the W Hotel, which had been shuttered since the 2017 hurricane, for a reported US$18.3 million. He also owns a US$5 million monastery in the historic district of San Juan that doubles as his "club house".
Some find him increasingly insufferable, resent his role as the self-appointed "face" of their movement and question how much of the US$1 billion he pledged to donate to the island and associated causes has materialised. "I am a positive member of society, but I don't go shouting it around," says Andrew Keys, a crypto whale who migrated to the island several years ago. "Brock Pierce said he was going to donate a billion dollars to Puerto Rico. We've hardly seen any of that."
Pierce responds to criticism by claiming to have given away "eight figures" already. "I've invested more than anyone I know," he says. "I'm not aware of anyone on Earth who has made that kind of commitment. But you realise how hard it is to give money away."
Another of Pierce's projects is the Creator Academy, an interactive art museum that Arteaga is helping to set up in a crumbling old San Juan mansion. Arteaga hopes in time that the space will become a hub for local artists, as well as a fun museum for children. As with so much digital art, the aesthetic is best described as "Burning Man on tour": one exhibit features a giant illuminated unicorn head called Howie.
"I just happen to be one of the people who is rolling up my sleeves and wants to do something," Arteaga says. "I'm trying to build something that makes a difference. But it also feels good. I want my life to have purpose."
Unfortunately not all Puerto Ricans are thrilled with their new neighbours, and there has been considerable backlash against the crypto migrants in particular. On one main road in San Juan posters were put up recently showing pictures of Logan Paul, declaring "This is what our colonisers look like".
Along with his brother, Jake, Paul upped sticks from California last year and has rented a US$13 million home in the Ritz Carlton complex in Dorado, just west of San Juan, where many of the wealthiest new migrants have congregated. Jake Paul recently caused outrage by posting a video of himself apparently driving across a beach that was protected for turtle nesting.
"There's a sense of invincibility that some of these big personalities have," Arteaga says. "Logan Paul having his ass out on some beautiful part of Puerto Rico? Seriously, not cool."
Some Puerto Ricans have undoubtedly benefited from the crypto influx. Julio Domenech, 24, was working in a job collecting business cards at bars for an IT firm when Gmoney encouraged him to start investing in crypto. Now he's a "millionaire" and recently returned from a crypto conference in Dubai. "It's honestly like a dream," Domenech says. "Crypto changed my life completely. We're empowered, man. Locals are getting involved too."
Not all locals, though. Some find considerable irony in the fact that a group of people who have made their wealth from one of the most energy-intensive activities in the world, cryptocurrency, are now moving to a territory plagued by power shortages. Bitcoin isn't exactly in general use on the island.
"The disparity is just brutal," Toro says. "I still have power cuts once a week. If you really want to contribute to a country you can't just sign a cheque, which is what most of them do. They are coming here to benefit from this treasure, this land we have. But if the benefits dry up, how many will stay?"
As it stands, tax migrants have to spend 183 days a year on the island and make it their clear permanent residence. My sense of the Puerto Rico influx is that, beyond a core of true believers, many of the crypto investors and other tax migrants are there for an adventure, don't seem enormously invested in the long-term future of the island and will need sustained incentives to remain more than a few years. Otherwise many of these digital nomads could, in due course, take their money elsewhere.
Keys says he now considers himself Puerto Rican. "I've had a positive impact here," he says. "I donate more than any Puerto Rican has donated. The only thing that would change the situation is if the government repealed the [tax incentive] act." It is the wealthy migrants then, with their willingness to leave, who hold the real power.
Keys's company, Darma Capital, a digital asset risk management firm, is a central player in Puerto Rico's burgeoning decentralised finance, or "DeFi", scene. If the Web3 revolution truly takes off and a new digital economy is created, it might end up looking a lot like the current set-up in Puerto Rico. Bid farewell then to the hulking behemoths of Silicon Valley, with their mega-campuses and corporate vastness; this new economy is small-batch and hyper-mobile, full of eight or nine-person businesses and continual innovation. "The world of campuses and huge tech giants, that world's not going to last," Keys says. "Though it will probably have a long tail."
Don't expect Silicon Valley to give up without a fight. Big Californian money is now pouring into blockchain investments. Marc Andreessen, the pioneering tech investor, is raising in excess of US$4.5 billion to invest in blockchain technologies, though some Web3 die-hards are sceptical about taking his cash. Meanwhile Zuckerberg has rebranded Facebook as Meta and says it will be a metaverse-focused company from here on. Microsoft is ploughing tens of billions into gaming technology, hoping to provide an all-encompassing gaming platform that will rule the metaverse.
"The big battle now is between centralised and decentralised," says AJ Banon, vice-president of growth at Serotonin. "These powerful companies are going to fight back." If Zuckerberg and friends have their way the new internet may look different to the old one, but the same people will be profiting from it via many of the same corporate structures.
The battle lines are drawn, then. Large vested interests and feisty but increasingly wealthy small investors will fight for control of our digital future. In the meantime the rest of us resemble the citizens of Puerto Rico, watching on with wide eyes, some enthusiastic, others horrified, many just plain confused, waiting to see who emerges victorious and what kind of world-changing technology will prevail.
It's not clear to me that many of us need or want any of these new ideas being pushed on society by a determined minority. But the rewards are so lucrative and the momentum so strong, it seems likely we're going to get them anyway.
Puerto Rico's tax-haven reinvention
Puerto Rico is an oddity: an island in the Caribbean that has been controlled by the US since 1898 but is not fully part of the US federal system. It's an "unincorporated territory", rather than a US state. That position has enabled Puerto Rico to become a haven for Americans seeking to escape mainland taxes.
About a decade ago the territory began introducing measures to attract wealthy investors: among other things it allowed those who became resident there to minimise or avoid altogether tax on capital gains and dividends from companies. Since then an estimated 4,000 companies and wealthy individuals have relocated to Puerto Rico.
The US Inland Revenue Service suspects that the US Treasury has missed out on hundreds of millions of dollars in revenue from wealthy individuals, hedge-funders and crypto traders moving to Puerto Rico. It is now scrutinising the arrangements more closely.
Some locals are up in arms because they do not enjoy the same tax breaks, and the influx of wealthy outsiders is driving up property prices beyond the reach of existing residents.
How to speak crypto
Web3
The purported next phase of the internet. Built using blockchain technology, it will be more collaborative, taking power out of the hands of Silicon Valley and giving it back to the people. Or so its proponents claim.
Blockchain
In essence a digital ledger of transactions that is distributed across any computer on its network. A blockchain is maintained by its many users, not a government or corporation.
Metaverse
A shared virtual environment. You, or your hunky 3D avatar, could shop, socialise, play sport or even work in the metaverse. Still in its early stages.
Cryptocurrency
A digital or virtual currency that lives on the blockchain. Secured by cryptography, it is difficult to counterfeit and doesn't need the backing of a government or central bank.
Cryptopian
Someone who believes that cryptocurrencies and blockchain technology can generate huge wealth and deliver a fairer form of capitalism, aka optimists.
DeFi
Short for decentralised finance. DeFi uses the blockchain to cut out the middleman — banks, mortgage brokers, currency exchanges — allowing people to transact with one another in safety. We hope.
Non-Fungible Tokens (NFTs)
The term of the moment. NFTs are, in effect, guaranteed certificates of digital ownership, stored on the blockchain. A piece of digital art is easily replicable, for example, but NFTs allow for its ownership to be exclusive and verified.
Written by: Josh Glancy
© The Times of London
