Paraguay’s economy is at risk of losing over $200 million per year if a new bill to ban cryptocurrency mining is passed by lawmakers. The bill, introduced on April 4, claims that illegal mining operations are stealing power and disrupting the country’s electricity supply. If approved, the ban will be in effect for 180 days or until new legislation is enacted and the national power grid operator can ensure sufficient energy supply.
However, banning legal mining activities in the region could have costly consequences for Paraguay. Jaran Mellerud, the co-founder and chief mining strategist of Hashlabs Mining, explained that the country’s market size is not common for its population of 6.8 million people and its GDP of $41.7 billion, making it the 94th largest in the world according to Worldometer’s 2022 data. Mellerud argued that Bitcoin mining has made a significant and positive contribution to Paraguay’s trade balance.
Currently, Bitcoin mining firms in Paraguay must register and obtain authorization from the Ministry of Industry and Commerce. If the bill is passed, it could impact Marathon Digital Holdings, one of the industry’s largest players, which started deploying 27 megawatts of mining power around the Itaipu hydroelectric power plant in November.
The Itaipu dam has become a popular location for miners due to its ability to supply all of Paraguay’s electricity needs and provide excess electricity for tapping into. This excess electricity has historically been exported to Brazil at low prices, but recently Bitcoin miners have been willing to pay slightly higher prices. However, lawmakers claim that there have been 50 cases of power supply interruptions caused by cryptocurrency miners illegally accessing these electricity sources since February.
The National Electricity Administration estimates that each cryptocurrency mining operation has caused damages and losses of up to $94,900, and the total annual losses in the Alto Paraná area, where the Itaipu power plant is located, could reach $60 million. Mellerud acknowledged that illegal operations can be harmful to the grid if they draw too much electricity from low voltage lines.
A similar situation occurred in Kazakhstan a few years ago, leading to the government cracking down on the industry and expelling illegal mining operators from the country. Mellerud previously stated that Paraguay and Argentina would likely attract an influx of miners from the United States who are looking to expand or migrate to energy-rich nations with lower electricity costs.
The controversy in Paraguay coincides with the upcoming Bitcoin halving event, which is expected to occur on April 20. This event will reduce miner rewards from 6.25 BTC ($434,000) to 3.125 BTC ($217,000).
Overall, the potential ban on crypto mining in Paraguay poses significant economic risks for the country, while also highlighting the challenges faced by the cryptocurrency industry as it navigates regulatory hurdles and sustainability concerns.