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Paraguay Risks Losing $200M Annually with Proposed Bitcoin Mining Ban

Proposed ban on Bitcoin mining could prove costly for Paraguay

Hashlabs Mining's co-founder suggests that Bitcoin mining benefits Paraguay's trade balance and warns that banning it could harm the economy.

Key takeaways:

  1. Paraguay's proposed bill to ban crypto mining for 180 days could cost the country over $200 million annually, according to Hashlabs Mining co-founder Jaran Mellerud.
  2. Bitcoin mining has made a significant, positive contribution to Paraguay's trade balance, with the country attracting miners due to its excess electricity from the Itaipu hydroelectric power plant.
  3. Lawmakers cite illegal cryptocurrency mining operations as the reason for the proposed ban, claiming they have caused power supply interruptions and significant financial losses.

A draft bill introduced by Paraguayan lawmakers on April 4 seeks to ban cryptocurrency mining in the country for 180 days or until new laws are enacted and the national power grid operator can ensure sufficient energy supply. However, this proposed ban could come at a significant cost to the Paraguayan economy, potentially exceeding $200 million annually, as estimated by Jaran Mellerud, co-founder and chief mining strategist at Hashlabs Mining.

Mellerud's assessment assumes that Paraguay has 500 megawatts of legal miners paying $0.05 per kilowatt-hour in operating expenses. The potential loss is substantial for a country with a relatively small population of 6.8 million and the 94th-largest gross domestic product globally, standing at $41.7 billion as of 2022.

The proposed ban could also impact major industry players, such as Marathon Digital Holdings, which began deploying 27 megawatts of mining operations near the Itaipu hydroelectric power plant in November 2022. The Itaipu Dam has become a popular location for miners due to its excess electricity supply, which has historically been exported to Brazil at low prices.

Lawmakers cite illegal mining as the reason for the ban

Paraguayan lawmakers have justified the proposed ban by pointing to 50 cases of interrupted power supply linked to cryptocurrency miners illegally tapping into electricity sources since February. The National Electricity Administration estimates that each illegal mining operation has caused damages and losses of up to $94,900, with total annual losses in the Alto Paraná area, where the Itaipu power plant is located, potentially reaching $60 million.

Mellerud acknowledged that illegal operations can be harmful to the grid if they draw too much electricity from low voltage lines, drawing parallels to a similar situation in Kazakhstan that led to a government crackdown on the industry and the expulsion of illegal mining operators.

Despite the concerns over illegal mining, Mellerud emphasized that Bitcoin mining has provided a "significant, positive contribution to Paraguay's trade balance" thus far. 

The controversy in Paraguay comes as Bitcoin miners prepare for the upcoming halving event, expected to take place on April 20, which will reduce miner rewards from 6.25 Bitcoin (approximately $434,000) to 3.125 Bitcoin (around $217,000).