Andrew Keys’ last half-hour reverse commute from Manhattan to ConsenSys’ office in Brooklyn, N.Y., was a meditative experience. The founding father of the Ethereum blockchain daydreamed ways blockchain could improve the world, from digitizing money to decentralizing the web, before stepping out of a subway car into a gray winter morning. He much prefers dialing in from a tropical paradise.
Keys moved to Puerto Rico in January 2018, the height of the previous crypto bull market. He was part of a wave of early crypto adopters looking to take advantage of the island’s generous tax incentives. It was a trend that once symbolized the excesses of the blockchain industry, which settled down during the bear market but is now roaring back.
The reason is as clear as the island waters: Puerto Rico is a tax haven. That’s true for everyone, but the island’s hands-off approach to capital gains, income and business taxes is just what pro-capitalist, state skeptics look for in a residence. Call it simpatico with crypto, with the bonus of getting to keep your U.S. passport.
“Puerto Rico is awesome,” Keys said. “It's a beautiful Caribbean island. It's safe. It has what I would consider one of the most entrepreneurial-minded communities that are building all sorts of different businesses.” (After leaving ConsenSys, in 2019, he joined risk management firm DARMA Capital, which has a base on the island.)
One element that defines the latest crush of crypto-native emigres to the island is the insistence that the move means business. Pantera, one of the most watched hedge funds in crypto, have relocated to San Juan. So have CoinMint, a large bitcoin miner, SuperRare, a well-established non-fungible token (NFT) platform, and legendary crypto power couple Amanda and Sam Cassatt, ConsenSys alums turned marketing guru and venture capitalist, respectively.
There are money men, freelance coders and those trying their hand at the ultra-modern business of ETH staking. Coral DeFi, an investment management platform, Dex Grid, a decentralized energy startup, and the BarnBridge decentralized finance (DeFi) protocol were all spun up from the go in Puerto Rico.
And they’re more than welcome. In 2012, Puerto Rico passed two laws, Act 20 and Act 22, meant to court entrepreneurs and corporations. Act 20 set a 4% tax for businesses that export services – say blockchain consultancy – from the island.
But Act 22 is the real draw. Though it is officially a part of the U.S., the island has cordoned itself off from the mainland’s tax code and exempts residents from taxes on capital gains. That makes it the only place on U.S. soil where income from investments, interest and dividends is untaxed. All you have to do is spend 183 days per year on an island known for its pearl-white beaches and dark rums (residing on a boat within territorial waters also works).
“I wouldn’t call it a loophole,” Shehan Chandrasekera, a CPA and co-founder of Column Tax, said. “I don't think it's a hidden thing. Puerto Rico and other tax havens, those are pretty commonly talked about among the high-net-worth individual community.”
Plenty of jurisdictions – many of them tropical paradises – compete for treasure by offering low or no taxes. Some, like El Salvador, are directly appealing to the bitcoin community. But only Puerto Rico, which is closer to Caracas than it is to Miami, offers residents an easy way to keep their U.S. citizenship.
That doesn’t mean you’re likely to find suits wandering the sandy shores – it is crypto after all. Even when Keys was taking the L train, he was wearing jeans and tee shirt. But the new crush of immigration is self-consciously more corporate-oriented than the last, if only as a reaction to previous criticism of trying to set up the unincorporated U.S. commonwealth as a “blockchain island.”
In 2017, former child star and presidential candidate Brock Pierce introduced the world to both the smart contract platform EOS and the idea for a crypto homestead called “Puertopia.” The latter plans drew major media attention, and for good reason. Pierce and his cadre purchased hotels, churches and even a defunct children’s hospital to house their crypto sandbox. There were plans to incorporate a city.
Although the rich have long exploited Puerto Rico’s ready-made tax avoidance setup, it was Pierce who really brought the concept to crypto. “Brock is still number one, just the amount of people he has in his network, the amount of traveling he does and the influence that he has in the community,” Pedro Rivera, founder of Crypto Mondays in San Juan, said over the phone.
In exchange for paying very little in taxes, these crypteau-riche men (mostly men, at least) would reinvest their capital in Puerto Rico. That’s always been the implicit goal of any business-friendly tax policy, and with Pierce, it became an explicit promise. And it was made all the more real in the wake of Hurricane Maria, which devastated the island’s already fragile economy and infrastructure.
Pierce, who has promised to donate his multibillion-dollar fortune in part to support his chosen homeland, launched rebuilding efforts in real life and on-chain. It’s hard to judge the impact of that work. Real money was spent, but it wasn’t quite the renaissance as advertised. (Pierce did not respond to multiple requests for comment for this story.)
Of course, the severe market downturn (and later global pandemic) derailed many of the wildest plans to build back up. But it was never clear precisely what reinventing Puerto Rico’s digital economy meant. Or if it was wanted.
“People don’t have light, electricity, the internet ... their roofs are leaking,” Rivera, who emigrated from the Bronx in 2017, said. “They don’t care about crypto, bro.”
If there was any tangible effect crypto’s wealth has had on the island’s recovery efforts, it was likely made at the individual level or was too local to be noticed, he said. For his part, Rivera said he helped raise $27,000 to fund roof work at Poet’s Passage, a local landmark where he holds weekly crypto meetups. Recently, he closed a $100,000 funding round backed by the Crypto Monday's community and intends to give away wallets preloaded with $10 in crypto to thousands of kids of the Boys & Girls Clubs. (The charity was not involved in this process and has not yet endorsed the idea.)
“I've had a bunch of Puerto Ricans that have made money in crypto by investing in it,” he said. But in terms of crypto companies creating high-paying jobs for locals? “We haven't been able to really make that flourish just yet,” he said.
For some, the vaporware, the tax dodge, the monastery-to-boutique-hotel pipeline all adds up to one thing: exploitation. Canadian leftist intellectual and author Naomi Klein looked at the situation and called it “crypto colonialism”; Jillian Crandall, a researcher at Rensselaer Polytechnic Institute, called it a perverse form of “disaster capitalism.” CoinDesk published a report that asked if Puerto Rico could survive the “eternal boy playground,” the rough Latin translation of “Puertopia.”
“If it weren’t for the fact that Puerto Rico is a U.S. commonwealth, the [Puertopia] venture would seem exactly like colonialism – the policy or practice of acquiring full or partial political control over another country, occupying it with settlers and exploiting it economically. Wait, no, actually it’s still colonialism,” CoinDesk’s Bailey Reutzel wrote in 2018.
It’s a legacy that’s hard to outrun.
Making a blockchain island
It was the fourth week of Keiko Yoshino’s one-week Caribbean vacation last winter before she realized she didn’t want to leave. She flew back to Washington, D.C., where she was working in the public sector, to pack her belongings and tie up loose ends. She arrived back in San Juan with two suitcases and a new title: executive director of the Blockchain Trade Association in Puerto Rico.
“If you asked me in December, I would have been like, ‘bitcoin, that's like the imaginary money, right?’” she said. But in Puerto Rico, it clicked. Everything clicked. She fell in love with the technology and the island. “It's a vibe. It's the energy. … It's like falling through the looking glass,” she said. “It's very different here. Different values, different priorities.”
Yoshino isn’t your usual suspect when thinking about crypto and Puerto Rico. She’s not a crypto-bro, she’s not crypto-rich and she’s not looking to start an anarcho-capitalist collective. She helped found the blockchain association to support the local crypto community and put her years of government experience to work. It pays the bills, but she's not getting rich.
But that doesn’t stop people from attacking her. “I was on social media earlier: They misspelled my name, they called me a crypto colonizer,” she said. As a relative newcomer to the industry, she finds the idea that blockchain startups are malevolent usurpers is as laughable as the idea that they’re going to revolutionize the island anytime soon.
“It’s disconnected from reality,” she said. Her day job has her organizing a conference this winter. On the weekends, she plays volleyball. She mentioned an association member, Raincoat, an insurance firm that is using blockchain technology to help disburse insurance payments after hurricanes. From her perspective, the tax incentive program has largely helped the country, but not everyone agrees.
“It's kind of sickening how the corporations that are there to take advantage of the 4% export tax do absolutely nothing to improve the local economy,” a crypto trader who goes by "PVKT" on Reddit and asked to remain pseudonymous said. He moved there in 2019, primarily for the tax benefits, before repatriating. Living in a resort town two years after Maria, he faced roaming blackouts that were “not very conducive to trading.”
Then there was the abject poverty on view – the concrete houses, the crumbling infrastructure, the lack of water or basic utilities. It was hard to square his lifestyle, and those around him, with the experience of local people. “You trade a lot for the incentives. If money is your only concern and nothing else, then it might fit the bill,” PVKT said.
JSON, a pseudonymous Twitter user, was also planning to move to Puerto Rico before he stared down a similar moral quandary. “When I look deeper into it, there's a lot that is less than desirable. ... Wealthy people move there but do little to contribute to the local economy. The people there are so nice, but some feel taken advantage of,” he said.
To the extent that there is a crypto community in Puerto Rico, it has likely developed because of the proximity principle. Most of the crypto expats I spoke to lived in the same few neighborhoods in San Juan or Dorado, a wealthy coastal enclave. There are world-class restaurants nearby where the hosts speak English and private schools to send your kids.
“What happens is you have a high concentration of these people in small areas,” Rivera said. Although he lives in a neighborhood that’s primarily Spanish speaking, he prefers to socialize with the upper class. “So what happens is we all go to the same places. There are not that many high-end places in Puerto Rico.”
That’s not necessarily a bad thing – although the rich may escape paying capital gains taxes, they still contribute to the state. Keys noted he pays corporate income tax, property taxes, sales tax. “There's infinite taxes that people still will have to pay. Albeit potentially lower,” he said.
At times, the expats have faced more pressure for their decision to move to Puerto Rico than taking a gamble on decentralized internet money. But in some sense, moving abroad to escape one’s tax burden is similar to plugging out from the current monetary system through crypto. Both are ways to outrun the state, and attempt to build an alternative system.
“No one's going to pay all those taxes,” Rivera said of the comparatively high tax bill he was staring down if he had stayed in The Bronx. “If you have an opportunity to not pay, it's not like our government needs the money, bro. They can print out money whenever they want.”
UPDATE (18 Aug., 2021 21:10 UTC): Adds that the Boys & Girls Clubs of America was not involved in a plan to give away donated crypto wallets.
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