Blockchain and bitcoin in Paraguay
Paraguayans have so far been relatively cool on blockchain adoption, compared to most neighbouring countries. Bitcoin trading volume in the country is low, and very few establishments accept cryptocurrencies as a means of payment. But the country could be set to become a paradise for crypto miners, thanks to proposed new legislation, and with the right approach, the unbanked population represents a huge potential market for crypto apps and exchanges.
In this article we will examine the often complicated relationship between Paraguay and the blockchain, from individual use to the government’s official stance on this relatively new but increasingly important phenomenon.
Paraguay’s crypto ecosystem
The ecosystem in Paraguay is underdeveloped compared to other South American countries, but certain initiatives are underway which may boost the profile of cryptocurrencies in the region significantly in the next few years. Chief among these is the Golden Goose project, launched by the Commons Foundation, which aims to build the biggest crypto mining center in the world (reaching 200,000 square metres in total), using energy from the country’s Itaipú hydroelectric dam.
Paraguay also hosts multiple organizations whose technological and educational projects promote the use of blockchain, including Cripex, Gobit SA, Signatura.co, Casa Bitcoin and Bitcoineta. Among the official uses of the blockchain is a pilot plan launched by the government to manage and trace the provenance of domestic meat.
As with most Latin American countries, Paraguay has no official regulatory oversight of cryptocurrencies. In May 2019, the Paraguayan Central Bank (PCB) issued a release reiterating that the guaraní is the country’s only official currency, and warning investors and the general public about the use of cryptocurrencies. However, as we will see, legislators are determined to introduce promising new legislation governing cryptocurrency and blockchain use.
Latest developments
In June of this year, Paraguay’s legislature approved a bill creating a tax and regulatory framework for crypto mining and trading in the country, and regulating businesses undertaking mining activities. The bill was similar to undertakings in Venezuela and El Salvador, whose government officially declared cryptocurrencies a legal tender just over a year ago. In August, though, Paraguay’s President Mario Abdo Benítez fully vetoed the bill, following recommendations by the National Electricity Administration (ANDE), Ministry of Industry and Trade (MIC) and the PCB.
The President – who formerly worked as a computer scientist and university professor, and is one of the founders of the Paraguayan Association of Blockchain, dedicated to promoting its fair regulation – said the proposed law seeks to lower costs for the “industrial [crypto] miner,” but does not provide tools or protections for the “amateur, domestic or homemade miner.” “[Legislators] only met with large mining businessmen, very hastily, without taking into account issues of energy or tax policy,” he concluded.
The bill has now been sent back to the National Congress. If both chambers ratify it with absolute majorities, it can still be enacted despite the presidential veto. Other initiatives are also being debated, such as a bill proposing that payments from crypto miners be made in advance and in dollars; and another proposing that the government take advantage of Paraguay’s energy surplus to exonerate low-income families from paying full-price, rather than subsidizing wealthy foreign investors.
The bill’s authors say it aims to attract international mining players be leveraging Paraguay’s low electricity rates, while positioning Paraguay as the crypto hub for Latin America and a model for other countries in the region. If the bill is approved, they will seek to present a second one which seeks to formalize the use of bitcoin as legal tender in the country.
Mining companies have long considered Paraguay to be an appealing location due to its cost of electricity, which is the lowest in the region at around $0.05 per kilowatt-hour. Almost 100% of production comes from hydroelectric sources, which the Congressmen behind the bill say is renewable and non-polluting – another potential benefit for international mining companies.
To mine crypto in Paraguay, companies just need to register and pay taxes, which tend to be lower than neighbouring countries as well. Paraguay currently has a system for international organizations known as “triple 10”, consisting of 10% income tax, 10% VAT, and 10% personal income tax. The country offers no restrictions on foreign capital flows and the payment of dividends abroad, making it an attractive destination for crypto investors.
A future bitcoin mining paradise?
Bitcoin mining – the process of adding and verifying blocks of transactions to the public Bitcoin blockchain – is typically carried out on an industrial scale, requiring lots of computers and therefore a great deal of energy.
The abundance of cheap energy in Paraguay – which is the world’s fourth-largest net exporter of energy after France, Germany and Canada, despite being landlocked and not having any petroleum or natural gas reserves – is prompting a number of major international crypto mining companies to set up bases there, hence the growing debate in Congress about regulating and taxing their activities.
For example, in 2021 Canadian mining giant Bitfarms announced a five-year lease in the country, with an annually-renewable power purchase agreement to secure 10 MW of green hydropower.
Paraguay has some of the lowest electricity rates in the world, but the trend is also attributable to tax exemptions and a light regulatory framework which provides mining companies with several benefits. The energy surplus can be traced back to the huge Paraná and Paraguay rivers, whose water is processed by the Itaipú and Yacyretá dams. Paraguay’s industry and infrastructure is not yet equipped to harness such amounts of electricity, hence the country’s unusually high export figures.
The first time crypto mining hit the headlines in Paraguay was in 2019, when companies linked to local politicians were caught stealing electricity to generate Bitcoin. Since then, an increasing number of domestic and international companies have installed giant metal or concrete containers hosting rows of computing devices, fans and air conditioners in industrial spaces. They have also moved to major cities – such as Ciudad del Este, San Pedro or Paraguarí – and rural towns, like Villarrica.
This city, home to around 60,000 people and surrounded by soybean fields and cows, now hosts multiple multinational blockchain companies, such as Future FinTech and Bitfarm, who are competing with local crypto miners. There are at least 30,000 ASICs – the computers necessary for the processing of bitcoin – in Villarica today. Locals warn that bitcoin mining in the region, while still profitable, is much less so than in the early days of the region’s prominence as a bitcoin mining paradise.
As we have seen, while blockchain adoption is not particularly high in Paraguay, especially compared to nieghbouring Latin American countries, the country’s unique energy prices and output makes it an ideal location for bitcoin miners – especially since regulation around this nascent industry is not yet properly established, and looks set to evolve positively in the near future, thanks to the support of prominent politicians. Blockchain and bitcoin enthusiasts should definitely follow the lead of multinational blockchain companies and look to Paraguay for new opportunities, with the guidance of dedicated specialists in the region.