Paraguay is experiencing a steady growth in illegal cryptocurrency mining due to its attractive low energy costs, resulting in an overwhelmed electrical energy supply. Authorities have decided to crack down on these farms to eradicate illegal connections.
In Paraguay, the irregular theft of electrical energy for creating cryptocurrencies has been causing frequent power outages and interruptions to an otherwise steady electricity supply.
On Wednesday, Paula Carro, the presidential spokesperson for the government of Paraguay, reported that connections to energy transmission networks from cryptocurrency mining farms operating outside the law are causing an overload of the distribution system and causing it to collapse.
New interventions for irregular activities by the National Electrical Administration (ANDE), the operator of Paraguay’s national electricity grid, occur every day. Just last week, the Information Agency of Paraguay reported that a large establishment dedicated to crypto mining was detected in the 16,000-people town of Quiindy, department of Paraguarí. More than 1,000 cryptocurrency processing machines were seized at the site.
In Lambaré, the sixth-most populous city in Paraguay, ANDE intervened for the second time this year in a warehouse functioning as a cryptocurrency factory, involved in large-scale theft of electrical energy. The financial toll on the state company amounted to over 700 million guaraní (95,000 dollars) per month. The intervention followed complaints from residents regarding frequent power outages.
To combat these irregular connections, an Interinstitutional Cooperation Agreement was signed between the Public Ministry, the Supreme Court, and ANDE to facilitate the judicial process concerning the identification, persecution, and punishment of clandestine miners.
The agreement marks a significant stride towards streamlining the judicial process.
ANDE disclosed that, since 2019, over 60 pending criminal complaints await resolution. Additionally, since 2023, there have been 43 interventions seizing equipment able to consume 90 MW of power in total — a capacity four times greater than the electrical demand of Villarrica, the capital of the Guairá Department with 56,000 people.
The decision to crack down on illegal connections is supported by the Paraguayan Chamber of Fintech which has long advocated against illegal mining.
Paraguay’s cost-effective energy attractive for Bitcoin mining
Paraguay boasts some of the world’s greenest and most cost-effective energies, sourced entirely from hydroelectric power thanks to the Itaipu Dam, located on the Paraná River on the border between Paraguay and Brazil.
The dam is the third largest hydroelectric power plant in the world and according to the International Hydropower Association, it generates about 95 percent of Paraguay’s electricity.
As a result, since 2019, the crypto-mining sector has grown significantly in Paraguay where the costs of this abundant renewable energy are low and the capacity is high, allowing it to become an attractive region for Bitcoin production.
For instance, a team of crypto-miners employed by Braiins Mining, a Czech company building tools for mining crypto, determined in early 2022 that Paraguay, with energy costs averaging around 0.033 dollar per kilowatt-hour (kWh) and one of the world’s most stable electricity tariffs, represented a “veritable oasis for Bitcoin miners.”
The first entrepreneurs of Bitcoin in Paraguay set up their farm in Villarrica, a city distinctive for its independence from the national power grid; it has its own private energy company, CLYFSA.
Over time, crypto-mining farms spread and congregated in the Alto Paraná Department where the dam is. According to Félix Sosa, the president of ANDE, illegal connections by mining companies led to losses of 2.8 billion guaraníes (380,000 dollars) per month in 2022 through July in the department alone.
Regulating crypto-mining
In 2022, a bill regulating the practice of crypto-mining failed to pass due to a veto by former President Mario Abdo Benítez, causing a blow to the burgeoning industry. According to Coindesk, ANDE had requested that the Paraguayan government raise electricity tariffs by as much as 60% over the industry standard — and the bill, if passed, would have capped these increases at 15%.
A special regulation implemented by ANDE is in force to ensure a specific rate for mining activity, with only 50 companies having been granted the legal status to engage in the practice of mining.
On social network X, the spokesperson for the government of Paraguay last week claimed that the current government of Santiago Peña “is working to provide a definitive solution to the electricity outages by attacking their main causes.”
Ms. Carro then explained that this definitive solution lies in the digitalization of 100% of the distribution networks, and this technological implementation will allow irregular connections to be detected more easily.
The state company has also made plans to install 4,500 distribution transformers throughout the metropolitan area to avoid overloads.
