Paraguay has emerged as an attractive place for crypto currency miners, particularly Bitcoin in recent times. HIVE Digital Technologies Ltd, a leading digital asset miner of $0.51B market capitalization recently announced its plans to construct a 100 megawatt digital asset mining operation in Paraguay after meeting with the President Santiago Peña and his cabinet ministers. The company hoped to utilize clean energy from Paraguay’s Itaipu hydroelectric dam and this mining facility is expected to increase its Bitcoin mining operations up to 12.1 Exahash per second (EH/s). In return, Paraguay is expected to generate over $100 million revenue for the government’s utility company (ANDE) over the next three years.
Last year, in Nov 2023, Tether had also announced plans to build mining facilities in Uruguay, Paraguay and El Salvador with an investment of around $500 million. In May 2024, Bitfarms, a Bitcoin mining company secured an additional 100 megawatts (MW) of electricity from Paraguay’s state-owned power company (ANDE) for its mining facility in Yguazú, eastern Paraguay, thus increasing total capacity up to 200 megawatts (MW).
Abundant & Cheap Hydroelectric Power
Paraguay is abundant in hydroelectric energy due to its two big hydroelectric dams, Itaipu (world’s third-largest hydroelectric dam) and Yacyreta. In 2023, electricity exports constituted approximately 13.2% of Paraguay’s total exports.
The abundance of hydroelectric power has led to relatively low electricity costs, making the country attractive for energy-intensive crypto mining operations. At least 50 mining companies are legally operating in Paraguay which also have energy contracts ranging from 6 MW to 100 MW with the government. These mining operations in the country have also generated job opportunities for the local population, both directly in mining operations and indirectly in supporting industries. The influx of crypto mining companies has also brought foreign investments, contributing to economic growth. Crypto mining operations also boost the demand for electricity as the country has surplus energy to export.
Challenges and Controversies
However, this mining frenzy has also brought some risks to the country. The high energy consumption by crypto mining companies has raised concerns about the strain on Paraguay’s power grid and its impact on the environment.
Without proper regulation, illegal mining operations have proliferated. These operations often tap into the power grid without authorization, leading to significant financial losses for electricity providers. There have been frequent cases of power supply interruption due to illegal crypto miners clandestinely hooking into the grid. In May 2024, over 550 illegal miners were seized by the Paraguayan government who were siphoning energy from the national grid.
Further, absence of a comprehensive regulatory framework for crypto mining has created uncertainty for investors and operators.
Rising Electricity Tariffs
On June 26, 2024, National Power Administration of Paraguay (ANDE) raised power fees by 14% for cryptocurrency mining operators threatening their profitability. The increase has attracted wider criticism from industry insiders, politicians and elected senators who termed it harmful for any future investments in the field. Chamber of Digital Asset Mining (Capamad), an industry body representing legal Paraguayan Bitcoin miners appealed ANDE to reconsider its decision otherwise 70% of legitimate operators could go out of business.
The decision to increase energy tariff has already forced some miners to shift their activities to other countries. There are reports that Penguin Group, a major cryptocurrency mining company has shifted its operations to neighboring Brazil where it successfully secured 400MW of energy contract.
Proposed Ban on Crypto Mining
To counter energy theft by illegal crypto miners and to meet energy demands in the country amid scorching heat, the Paraguayan government proposed a temporary ban on crypto mining to address energy consumption and illegal activities. On April 3rd, 2024, a bill by Paraguayan legislators proposed a temporary ban (up to at least six months) on Bitcoin mining in the country. The bill also proposed to prohibit the storage and trading of cryptocurrencies in the country. However, this bill was later suspended as the government decided to sell its surplus electricity to crypto miners estimating a 45% return on electricity generation cost.
Though there have been attempts to introduce legislation to regulate the crypto mining industry, these efforts have faced opposition and have not yet been successful.
Conclusion
Paraguay’s significance for the crypto mining industry is a complex issue with both potential benefits and drawbacks. The country’s abundant hydroelectric power presents a unique opportunity, but the challenges related to energy consumption, illegal mining, and regulatory uncertainty have eroded its position as a crypto mining haven. These issues need to be addressed for the industry to develop sustainably. Until then, the future of Bitcoin mining in Paraguay remains uncertain.