Is Paraguay the Next Mecca for Cryptocurrency?
- Nanna Course
- on Aug 28, 2022
It takes a lot of energy and several machines to unravel the chain of codes that makes it possible to obtain bitcoin, the most famous cryptocurrency on the market. And, if there’s anything Paraguay has – besides soybeans, timber, and a huge population of cows – it’s very cheap electricity. This is why more and more Bitcoin generators are arriving in this South American country which, after France, Germany and Canada, is the fourth net exporter of energy in the world, although landlocked and devoid of oil or natural gas reserves.
Since 2020, Paraguay has seen an increasing number of local and foreign companies installing huge metal or concrete containers with rows of IT devices, fans and air conditioners in industrial spaces, but also in cities that were once jungles – like Ciudad del Este, San Pedro or Paraguarí – and in rural towns that are full of German descendants, like Villarrica. This is due to some of the lowest electricity tariffs in the world, as well as legislation that provides mining companies with several benefits, including lower energy prices, tax exemptions and a lighter regulatory framework.
Along with El Salvador or Venezuela, Paraguay is debating a crypto mining regulation that awaits approval or a veto from President Mario Abdo Benítez of the conservative Colorado Party. For the 55-year-old president – a computer scientist and university professor by profession – this law aims to lower the costs of “industry [crypto] miner”, but does not provide tools or protection for the “amateur, domestic or artisanal miner”.
Benítez was one of the first to connect to the internet in the country in the 1990s. Since 2010 – before most of us had even heard of cryptocurrencies – he was already “mining” at his home in Asunción . Today, he manages the largest Telegram discussion group on the subject and is one of the founders of the Paraguayan Blockchain Association, dedicated to promoting fair regulation of this activity.
“They [the legislators] only met big mining businessmen, very hastily, regardless of energy or tax policy issues,” Benítez told El País, referring to the crypto mining bill. approved by the legislature.
Other initiatives are also under discussion. A bill proposes that payments from crypto miners be made in advance and in dollars; another proposes that the government take advantage of Paraguay’s energy surplus to exempt low-income families from paying the full tariff, rather than subsidizing wealthy foreign investors.
Where does Paraguay get so much energy from?
Responsible for the excess energy are the very long and powerful Paraná and Paraguay rivers, whose water is captured by the Itaipú and Yacyretá dams. However, despite the fact that Paraguay – a country the size of France – produces an enormous amount of electricity, it has virtually no industry or infrastructure to harness it. Paraguay’s seven million people don’t have access to electric trams, trains or buses – all means of transport are powered by fossil fuels, unless you choose to walk or cycle. In fact, the total electrical energy consumption in the country is only 20% of the overall energy consumption. About 42% comes from petroleum (via imported fuel) and 38% is generated from biomass (via burning wood from Paraguay’s lush forests).
In Paraguay, small businesses – which represent around 90% of businesses in the country – connected to the low-voltage grid pay around $58 for one megawatt hour of electricity… equivalent to the consumption of 90 liters of oil. However, some crypto miners only pay $18 per megawatt hour. By comparison, the average price paid in other South American countries is around $100 per megawatt hour.
Mercedes Canese, Paraguay’s former deputy minister of mines and energy, told EL PAÍS: “We subsidize their energy…they [the crypto miners] pay us less than when we export.
In recent years, other critical voices have increasingly pointed out that bitcoin consumes too much energy and generates a very large carbon footprint, which has led more and more companies to seek clean energy sources. and cheap to continue mining.
“We have energy and we give it away…especially to Brazil,” Canese added, referring to an agreement that obliges Paraguay to sell excess energy from the Itaipú dam to Brazil.
The first news about crypto mining in Paraguay came in 2019, when companies linked to local politicians were caught stealing electricity to generate Bitcoin. There are currently eight investigations open at the Paraguayan prosecutor’s office regarding this case.
“Before, only a few companies in Brazil caused problems. They rented a place, mined for a few months and then disappeared without paying the electricity bill. But now there are Canadian, American, Russian and Chinese companies,” explained President Benítez. He fears that if he signs the crypto mining legislation, foreign investors will have cheap energy without having to pay taxes and that only individuals with substantial purchasing power will be able to mine. bitcoins.
The wealth of Villarrica
In a city of around 60,000, surrounded by soybean fields and cows, multinational blockchain companies, such as Future FinTech and Bitfarm, are now competing with local crypto miners. In total, there are now at least 30,000 ASICs in Villarica – the computers needed to process bitcoin.
In Villarrica, German immigrants built their own power line just a year before Alfredo Stroessner’s longest dictatorship in the Americas (1954-1989), a regime that took 30 years longer than locals to bring electricity public energy in the region. The German company, CLYFSA, continues to exist to this day, using legal tricks to stay independent and private. Some crypto mining companies are located next to their power plant. CLYFSA buys subsidized electricity from the state and offers it to its customers at a low price, starting at $18 per megawatt-hour. For this reason, the director of Future FinTech, Shanchun Huang, declared his interest in “Paraguay’s hydroelectric power and clean energy resources”. Huang promised that FinTech would set up a “mining farm” if the company receives “preferential political treatment”.
Christian Katz is a Paraguayan businessman of German descent, born and raised in Villarrica, who has been very successful with cryptocurrency mining. He owns a company that provides internet services in his town, and a few years ago he jumped on the virtual mining bandwagon. He also considers himself a “national miner”, while also being a consultant for other companies in the sector.
“There were a lot of people who came to Villarrica to [crypto] mining… I realized I was in the middle of several companies bringing big investments to the city,” Katz recalled. He says he started with $1,000, but now needs to invest between $30,000 and $40,000 to get started.
“It’s still profitable, but the profitability has gone down a lot,” he explains. When it entered, the company promised a return on investment in one year. “Now it’s been two and a half years.
Katz believes that the state should formalize and collect taxes from foreign minors. He also acknowledges that although he checks the Bitcoin price several times a day, he does not recommend others to do so.
“I can’t and don’t want to make a living from mining alone. My advice is to see mining as something to do in your spare time…because it’s something that doesn’t last forever. It won’t last more than a few years. »
One of the major criticisms of cryptocurrency mining around the world is its high power consumption. Crypto investors are defending their businesses in Paraguay because hydroelectric plants offer renewable energy…but for how much longer? The Paraná River may be the second longest in South America after the Amazon, but it has 50 dams upstream in Brazilian territory. And, less than a year ago, there was an energy crisis due to the lack of water from the Itaipú dam, on which all of Paraguay depends.
Former minister Canese – an industrial engineer by training – opposes subsidizing crypto miners.
“Why, in the context of climate change, devote all this energy to something that does not produce anything tangible and does not create jobs? It’s a financial asset…it doesn’t generate wealth for our people.