It takes a lot of energy and a lot of machines to decode the chain of code that makes it possible to obtain Bitcoin, the most famous cryptocurrency on the market. And if Paraguay has anything – apart from patience, soybeans, two cows for every inhabitant, forests and rivers – then that: very cheap electricity.
That’s why more and more Bitcoin producers are coming to this South American country, which is the fourth largest net exporter of energy after France, Germany and Canada, despite having no access to the sea, gas or oil. In fact, a few months ago, specialized website Criptonoticias described Paraguay as “the promised land of profitable bitcoin mining” based on both formal announcements and efforts by Paraguayan businessmen to attract large corporations dedicated to the activity.
Since 2020, more and more local and foreign companies in the country have installed huge metal or concrete containers with rows of computer equipment, fans and air conditioners in industrial areas, but also in places that were once jungle – like Ciudad del Este, San Pedro or Paraguarí – or are now in rural towns full of German descendants like Villarrica. This phenomenon has two main pillars: on the one hand, one of the lowest industrial electricity tariffs in the region and in the world; on the other hand, a bill that could offer mining companies benefits such as lower energy prices, tax exemptions, or government promises to sanction those who conduct mining activities or provide crypto-active services outside of the regulatory framework.
Along with El Salvador or Venezuela, Paraguay has been debating a crypto mining regulation awaiting approval or veto by President Mario Abdo Benítez (of the conservative Colorado party). For Luis Benítez (55), computer scientist and university professor, this law wants to reduce the costs for the “industrial miner” but does not provide tools and protects the “amateur, domestic or homemade miner”.
Benítez was one of the first to connect to the internet in the country in the 1990s, and since 2010 – before most of us heard about cryptocurrencies – he was already “mining” from his home in Asunción. Today, he leads the largest discussion group on Telegram on the subject and is one of the founders of the Paraguayan Association of Blockchain, which is dedicated to promoting fair regulation of this activity.
“They just met with big mining businessmen very hastily, without considering energy or tax policy issues,” Benítez told EL PAÍS, referring to the crypto mining bill approved by the Legislature. There are other initiatives in this regard, such as that of the National Electricity Company (ANDE), which in another project proposes that cryptominers be paid in advance and in dollars; or the left asking to use excess energy to relieve families with fewer resources.
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Paraguayan President Mario Abdo Benítez disembarks from a plane August 6 on his arrival in Bogotá, Colombia. Carlos Ortega (EFE)
Where does so much electricity come from?
Responsible for this surplus of energy are the very long and mighty rivers Paraná and Paraguay and all their tributaries; and the Itaipú and Yacyretá dams, which it shares with Brazil and Argentina. It’s a country the size of France that generates a lot of electricity but – after more than half a century of neoliberal policies – has little industry or infrastructure to harness it, leaving its seven million people unable to benefit. In Paraguay there are neither Metrobús, nor trams, nor any trains (neither overland nor underground). Everything is fossil here: motorcycle, car, bus, truck, tractor or on foot.
In fact, the total consumption of electrical energy in the country accounts for 20%. 42% is oil (imported fuel) and 38% biomass: wood from our own or third-party forests, according to official information.
In Paraguay, a small industry – like 90% of Paraguayan businesses – connected to the low-voltage grid pays about $58 to have 1 megawatt per hour of electricity (equivalent to consuming about 90 liters of oil). And some “cryptominers” — like those based in Villarrica — pay around $18 per megawatt-hour. A miserable difference to the average price paid in South America about $100 per megawatt hour, As Mercedes Canese, former Deputy Minister of Mines and Energy of Paraguay, explains to EL PAÍS. Not to mention the 235 euros per megawatt hour in Spain or the 530 in Italy.
Workers maintain a bitcoin mine in Whinstone, Texas, which consists of hundreds of computers working simultaneously. MARK FELIX (AFP)
“We subsidize the energy between us all. They pay us less than if we export it,” says Canese, an industrial engineer and parliamentary adviser.
In recent years, critical voices have multiplied, pointing out that Bitcoin consumes too much energy and generates a very significant carbon footprint, which has led more and more companies to look for “clean” and, above all, cheap energy sources continue mining. “We kind of have it and we’re giving it away. Especially to Brazil,” Canese added, referring to the agreement that obliges Paraguay to sell to Brazil the energy from Itaipu that it does not consume.
The first news about crypto mining in Paraguay came in 2019 when companies linked to local Ciudad del Este politicians were spotted stealing electricity to generate Bitcoin. For this reason, there are currently eight open investigations at the Paraguayan public prosecutor’s office.
“Before, only a few companies from Brazil came to Ciudad del Este and caused problems. They rented a place, mined for months, and then disappeared without paying for electricity. But now there are formal Canadian, American, Russian and Chinese companies,” explains Benítez. If the president enacts the law, foreign investments will have cheap energy without taxes and only wealthy families can mine bitcoin.
The wealth of Villarrica
Multinationals like Future FinTech have officially announced their landing in Paraguay and long-established Canadian Bitfarm there rivals in size that of local politician Emmanuel Friedmann and Penguin Academy in a town of around 60,000 cows surrounded by soybean fields 150 meters away, kilometers from the capital away. Friedmann calculates that there are at least 30,000 ASICs between his company and the others, as the computers required to process Bitcoin are called: two per household, but concentrated in a few hands. And this is due to a historical peculiarity.
A street in the department of Guairá (Paraguay), whose capital is Villarrica.Santi Carneri
Here, in Villarrica, the descendants of the Germans built their own power line just a year before Alfredo Stroessner’s dictatorship, the longest in America, (1954-1989), a regime that took 30 years longer than the locals to establish the public one power to reach the area. To do this, they set up a private company.
This company still exists today and manages to remain independent and privatized with legal tricks. It’s called CLYFSA and some mining companies are right next to their substation. The company buys subsidized electricity from the state and offers it to its customers at an even lower rate than the rest of the country, starting at $18 per megawatt-hour. That’s why Future FinTech Director Shanchun Huang issued a statement expressing his interest in “Paraguay’s hydropower and clean energy resources.” Huang asserted that if they received “preferential political treatment,” they would set up a “mining farm.”
Christian Katz is a Paraguayan businessman of German origin, born and raised in Villarrica, who has become very involved in cryptocurrency mining. He already owned a company providing internet services in his town and jumped on the virtual mining bandwagon a few years ago. He also sees himself as a “domestic miner”, although he also acts as a consultant for other companies in the industry.
“I realized that a lot of people came to Villarrica to mine. It caught my attention. I realized I was in the midst of several companies that brought big investments to the city,” says Katz. He says he started with $1,000, but now requires an investment of between $30,000 and $40,000 to get started.
“It’s still profitable, but profitability has fallen sharply,” he explains. When he got on board, the company promised a return on investment in one year: “Now it’s two and a half years.”
“I believe the state needs to step in to formalize and collect what taxes it needs to collect from foreign companies. It’s not an opportunity for Silver People. It’s for the country. It’s money for ANDE, for the state,” says Katz.
He admits that he looks at the price of bitcoin several times a day, but advises others not to: “I can’t and don’t want to make a living from mining alone, my personal advice is to see mining as something you can do with yours.” Leisure, a hobby that produces silver, that should be the focus because it’s something that doesn’t last forever.”
“It won’t take more than four or eight years. And as long as Toyota doesn’t come along to set up a car plant…” he added.
A bitcoin ATM that allows you to buy percentages of bitcoin starting at $20 in a store in Asunción (Paraguay) Santi Carneri
One of the main criticisms of cryptocurrency mining around the world is the high energy consumption involved, which is why the businessman defends doing it in Paraguay, where the Itaipú hydroelectric power station is located, which has the largest production in America and which competes with the Chinese Three -Gorges Dam to be the first in the world. Yes, it is renewable energy, but by when?
The Paraná River is colossal and the second longest in South America after the Amazon, but it has another 50 dams upstream on Brazilian territory. Less than a year ago, there was an energy crisis due to water shortages in the Itaipu Dam, on which 10 percent of Brazil’s and almost all of Paraguay’s energy depends.
“It’s a global debate. In the context of climate change, why waste all that energy on something that doesn’t produce and doesn’t create jobs? It’s a financial asset, it doesn’t create wealth. Therefore it is extractivism. You have a very important profit from a raw material and with a subsidy on top of that,” argues industrial engineer Canese.