Bitcoin Mining Ban Proposed in Paraguay Over Power Problems

The sizzling summer heat is just the tip of the melting iceberg when it comes to Paraguay's crypto conundrum.

As temperatures soar and air conditioners run at full throttle, the country's power grid is on the ropes, struggling to keep the lights on amidst a surge in electricity demand. The hot weather isn't the only thing that's straining the system, however. The government says illegal crypto mining farms have been guzzling gigawatts like there's no mañana.

To tackle this, a group of Paraguayan lawmakers have introduced a bill to temporarily slow down the power-hungry crypto mining industry by pausing all activities related to the ecosystem. And they're not mincing words:

"The creation, preservation, storage, and commercialization of virtual assets or crypto-assets, cryptocurrencies, and the installation of crypto-mining farms in Paraguayan territory are temporarily prohibited."

The bill proposes that the ban lasts either 180 days or until a proper regulatory framework is established and ANDE (Paraguay’s National Electricity Administration) can guarantee sufficient infrastructure to support the energy-intensive demands of crypto mining without jeopardizing the rest of the grid.

The bill's broad language could also inadvertently outlaw activities like crypto staking—which creates virtual assets—and even ban the simple act of holding digital assets in a wallet, which is effectively the act of storing or preserving crypto.

Violations of the proposed law would be sanctioned in accordance with the regulations governing the national financial system and the Central Bank of Paraguay, as well as the criminal offenses provided for in Law No. 1160/1997 "Penal Code" and other applicable administrative sanctions.

According to the bill's draft, the lack of a clear regulatory framework for the crypto ecosystem has left the door wide open for all sorts of problems, from consumer protection issues to potential criminal activities like money laundering and tax evasion.

Despite the bill's broad phrasing, the bill’s idea seems to tackle a very specific problem: illegal crypto mining farms that have been popping up across the country. These clandestine operations have been siphoning off electricity and evading existing local regulations.

Take, for instance, the recent bust at the facilities of Radio Quindii, where a whopping 700 active ASICs were uncovered. It was a crypto mining farm so massive, it required as much electricity as the city it was located in. And this is not an isolated case, with Government officials claiming that these illegal operations cost the state-owned utility ANDE over $60 million a year in lost revenue.

But it is not certain that the bill will become law. Only one day after being introduced, the text has already sparked criticism from local experts.

For example, in a long twitter thread, Luis Benitez, a free software activist who is heavily involved in the crypto community, explained why the proposed law could do more harm than good.

“The law does not distinguish between illegal and legitimate uses of crypto-assets. Regulation must be precise, protecting legitimate users without stifling the potential for economic and technological growth,” he said, “It's vital to consider the unintended consequences of the ban. It could boost illegal mining or move legitimate activity out of the country, losing revenue and economic opportunities.“

Benitez asserted that a more balanced approach would be to regulate energy intensive mining while promoting the development of energy-efficient tokens. He told Decrypt that crypto enthusiasts are already coordinating actions against the bill.

“The Hashpy community will mobilize again so the bill does not advance” he said. “We will request a public hearing to explain once more the alternatives that Paraguay has regarding the regulation of part of the crypto activity. Prohibiting technological advances has never been good for any economy.”

Edited by Ryan Ozawa.