Pros and cons for Paraguay

Paraguay has become a “new Latin American mecca for cryptocurrency mining”, a new report has claimed – but not everyone seems to be happy about the fact that more miners than ever are choosing to set up shop in the country.

As previously reported, last month the Paraguayan Senate signed a bill that will regulate crypto mining and trading in the country. The bill, which has been under way since September 2021, seeks to legalize mining and ensure that miners pay taxes and declare their operations.

Many Paraguayan politicians have argued that the mining sector can be a big money spinner for the government and power companies. The nation is home to a number of large hydroelectric plants that periodically produce surplus power.

Since this surplus power often cannot be used by Paraguayans, many advocates have called for international miners to be encouraged to set up near dams and power plants. While other industries have little use for intermittent power supplies, this is not the case for miners, whose rigs can take advantage of power when it’s available and sit idle when it’s not. Miners from as far away as Canada and China have already been cured, with talks still ongoing with some of the parties who fled China’s September 2021 crypto crackdown.

El Pais reported that an abundance of “very cheap electricity” has made the nation a “promised land for profitable Bitcoin mining”, noting that former “jungles” in Ciudad del Este, San Pedro and Paraguarí have already become major mining centers.

This is also the case in “villages” with high populations of ethnic Germans, such as Villarrica.

The bill, which must now be approved or vetoed by President Mario Abdo Benítez, will seal the fate of the country’s cryptomining sector.

But Luis Benítez, a university professor and long-time home cryptominer, argued that only industrial miners can benefit from it – and that “amateur and domestic” miners have nothing to gain from it. Benítez claimed that politicians had “only met with big mining companies” before formulating the bill, and had created legislation “very quickly, without taking into account issues related to energy and tax policy.”

In fact, power companies have also expressed concern. A national energy supplier has previously asked the government to oblige miners to pay in advance for electricity – and settle their bills in USD.

Other political critics have argued that the energy should instead be donated to poorer families.

But the reality of the situation is that right now Paraguay has little use for hydropower. The media explained that the country “hardly has any industry or infrastructure” that can harness the electrical energy, so “its seven million inhabitants cannot benefit from” the resource. Instead, public transport, cars and agricultural vehicles generally use fossil fuels – meaning that only 20% of Paraguay’s hydropower is actually used in the country where it was generated.

That means some miners have been wooed with promises that they will pay as little as $18 per megawatt hour for electricity. This is a huge difference from the “average price paid in South America”, which, according to former energy minister Mercedes Canese, “is around $100 per megawatt hour”.

Canese argued that this price was too low, arguing that energy importers are charged higher prices than miners.

Canese believed that “in the context of climate change” it does not make sense to “dedicate so much energy to something that does not produce [anything] and does not create jobs.”

She added that many miners only agreed to set up shop in Paraguay if they were allowed to use subsidized rates, lamenting the fact that crypto mining does not “generate wealth” for the nation.

Miners, she said, made big money from “commodities” and “on top of that they enjoy subsidies.”

In any case, there is evidence that mining may provide some new opportunities for some Paraguayans. The media gave the example of Villarrica resident and native Christian Katz, who has built a business that helps miners connect to the Internet.

But there are other wrinkles that may force Paraguay’s hand when it comes to speedy cryptomining regulations. Under a bilateral agreement with Brazil, which shares many of the rivers condemned by Paraguayan power stations, Paraguay must donate all the electricity it does not use (or sell) to its neighbor.

And in 2019, illegal crypto miners were found stealing electricity from hydroelectric plants – perhaps underscoring the need to legalize and tax the industry before it can go underground.

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Learn more:
– Paraguay’s Senate approved a bill regulating crypto mining and trading
– Paraguay: Bitcoin & Crypto Mining Bill Passes Senate, Heading to Lower House

– Paraguayan Senate Discusses Taking Bitcoin Mining ‘Out of the Gray Zone’
– Q2 Saw Over 59% of Bitcoin Mining on Sustainable Energy Mix – Bitcoin Mining Council

– ‘The Reckoning’ and ‘The Best Time’ to Enter Bitcoin Mining as Firms Diversify Amid Bear Market
– Bitcoin & Crypto Mining in 2022: New Locations, Technologies and Major Players