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Bitcoin mining in Paraguay: Is it a good use of the country’s energy resources?

by | Oct 21, 2023

Paraguay is currently debating what to do with the proliferation of bitcoin production farms. A single 50,000-square-foot facility for bitcoin mining in Paraguay consumes the same electricity as 20,000 middle-class homes.

When the Spanish founded the city of Villarrica in the 16th century in Paraguay, they expected to find abundant quantities of gold. But the gold never appeared. Now, 450 years later, what Villarrica produces are bitcoins.

Emmanuel Friedman is a local businessman from Villarrica who, together with his international partners, operates nearly 10,000 computing machines to do crypto mining, that is, generate electronic currencies by bitcoin mining in Paraguay.

How does it work? The machines are dedicated 24 hours daily to solving complex computer processes to validate transactions on the Bitcoin network. For this activity, crypto miners like Friedman are rewarded with fractions of bitcoin. The more machines with high computing power are used, the higher your income will be, but the cost of electricity, the primary input of crypto mining, rises. ”It is a new way to have extra income for all Paraguayans by transforming energy into an asset,” explains Friedmann.

The energy expenditure of Friedman’s crypto-mining complex bitcoin mining in Paraguay is equivalent to the consumption of 20,000 middle-class homes. It is estimated that between industrial miners and people who do crypto mining at home, there are 30,000 machines in Villarrica. “Today, we already have Swiss, Canadian, and Brazilian companies in the city doing mining,” says Friedman.

Low-cost bitcoin mining in Paraguay

CLYFSA, the private company that distributes electricity in Villarrica, has been purchasing energy for five years at a price below the cost of production, according to the National Energy Administration, ANDE.

In 2021, CLYFSA paid ANDE an old rate of USD 23.84 megawatt/hour, while the rest of the Paraguayans paid USD 41.98 per megawatt/hour. Judicial protection prevents ANDE from updating the rate to CLYFSA.

According to ANDE, the energy rate that Villarrica mining accesses is below the cost of production, which becomes “a subsidy granted by all the Paraguayan people,” the company said in a document published on its web portal.

”This means that the rest of the users have to pay that difference, either in their electricity bill or in a worse quality of service, because the necessary investments cannot be made,” says the former vice minister of Mines and Energy of Paraguay, Mercedes Canese, who observes with the growing fever for bitcoin mining in Paraguay with growing concern.

Paraguay is a country that generates 100% of its electricity from its binational hydroelectric plants: the Itaipú dam, in partnership with Brazil, and Yacyretá, in alliance with Argentina. Nearly 60% of Paraguay’s energy is not consumed in the country. The surplus is exported to Brazil and Argentina.

Crypto miners: “We must take advantage of the surplus energy.”

Juan José Benítez was one of the first crypto miners in Paraguay and has his own mining plant in the capital, Asunción. Benítez is one of the most audible voices that promote regulating this industry activity and encourages foreign capital’s arrival. “Take advantage of the surplus energy we have. Paraguay has a lot. We have renewable hydroelectric energy that is green, which is everything that, let’s say, any Bitcoin investor would be looking for at this moment,” Benítez assured.

The miners argue that the country would receive more significant income through bitcoin mining in Paraguay than by exporting surplus energy. “What Paraguay has the most of is energy. On top of that, it has energy that is not used. So, instead of Paraguay selling Brazil energy at ridiculously low prices, this is an excellent opportunity for everyone to sell energy to the large mining companies that come to invest in Paraguay to create a new way of making assets,” says Emmanuel Friedmann.

The cryptominers ‘ argument is not shared by the former Vice Minister of Energy, Mercedes Canese. We do not want “companies to come that consume a lot of energy, also at a subsidized price. This is because these types of investments do not generate employment. It is perhaps different from subsidizing a sector that does generate general well-being, such as public transportation, or an industry that is not electro-intensive, but employment-intensive .”

The environmental footprint of Bitcoin mining

Using electricity from fossil fuels to “mine” bitcoins is one of the significant criticisms of cryptocurrency mining globally. China banned crypto mining in 2021. Activity was temporarily reduced, but it is growing again. Although bitcoin mining in Paraguay is becoming increasingly popular, its global participation is barely 0.15%.

Bitcoin in the world

Although the electrical energy that Paraguay produces is completely clean. That is the argument of local crypto miners to defend their activity and attract foreign investors. Former Vice Minister Canese considers that if Paraguay’s surplus electrical energy stops being sent to Brazil and Argentina to prioritize crypto miners, those countries would likely have to look for alternative sources, such as oil derivatives. “So the greenhouse gas is not generated in Paraguay, but it will be generated in Brazil or Argentina, and the effect of climate change is global,” says Canese.

Paraguay’s hydraulic energy availability will be taken over starting in 2030, as estimated by the binational company ITAIPU, which generates energy from the Paraná River. The severe drought affecting the Paraná basin has reduced the levels of hydraulic energy production. It has fallen 36% since 2016, when ITAIPU had its best generation year.

Although Paraguay has surplus electricity, at least 23% of Paraguayan households still depend on the consumption of firewood for cooking, according to the latest Permanent Household Survey of 2018. In rural areas, firewood consumption for domestic use reaches 52%.

“We are talking about providing concentrated energy to crypto miners when we have places 50 kilometers from Asunción without power lines. The neighbors have to organize to set up an energy column. It is the neighbors themselves who have to assume the cost at an energy rate 4 or 5 times higher than what a crypto miner would pay in Villarrica,” says Leonardo Gómez from the Association of Technology, Education, Development, Research and Communication TEDIC, an organization that has monitored the development of crypto mining in Paraguay.

Government veto on crypto mining

In July, the Senate of Paraguay approved a law regulating bitcoin mining in Paraguay. However, the government of President Mario Abdo Benítez vetoed the law and returned it to Congress. The veto decree argues that crypto mining “does not generate added value.” It is characterized by “its high electrical energy consumption and low use of labor.” The government considers that the country’s industrial exports are growing and estimates that, in five years, the country’s manufacturing industry will require the available energy. “If Paraguay wants to intensify crypto mining today, in the next four years, it will be forced to import electricity,” the decree states.

The Paraguayan government’s veto of crypto mining relieves those who have doubts about the implications of equating crypto mining with a regular industry. However, Villarrica’s crypto miners will continue to benefit from low-cost energy that all Paraguayans somehow end up paying for.

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