Proposed Crypto Mining Ban Could Cost Paraguay Over $200M Annually
Summary:
Paraguay's economy could sustain an annual loss exceeding $200 million if a newly proposed law banning cryptocurrency mining is enacted, according to Hashlabs Mining co-founder, Jaran Mellerud. Currently, Bitcoin mining contributes positively to Paraguay's trade balance, but the law could significantly disrupt this, potentially affecting major players like Marathon Digital Holdings. The situation draws parallels with previous events in Kazakhstan, leading to speculation that other nations may receive an influx of miners. The controversy arises ahead of the Bitcoin halving event on April 20, which will diminish mining rewards.
Paraguay stands to lose over $200 million per year if the newly proposed law prohibiting cryptocurrency mining is approved, according to legislators. The bill, unveiled on April 4, states that unauthorized cryptocurrency mining operations are damaging the country's power supply. The prohibition will remain in effect for 180 days or until regulatory measures are implemented ensuring that the national electricity network can cope. Yet, Hashlabs Mining co-founder, Jaran Mellerud, warns that this ban could have significant economic implications for the South American nation. Mellerud projected that outlawing Bitcoin mining alone could incur an annual loss exceeding $200 million, provided that there are 500 megawatts of legally operating miners, each paying $0.05 per kilowatt-hour in operational expenditures. Paraguay, with a modest population of 6.8 million people and the world's 94th largest GDP ($41.7 billion), rarely witnesses markets of this magnitude.
Paraguay's trade balance has hitherto been positively impacted by Bitcoin mining, as per Mellerud. Presently, Bitcoin mining firms must be registered and approved by the Ministry of Industry and Commerce of Paraguay. The proposed bill could have substantial effects on Marathon Digital Holdings, one of the industry's bigwigs, which began setting up a 27-megawatt operation near the Itaipu hydroelectric power plant last November.
The Itaipu Dam satisfies all of Paraguay's domestic electrical demands and produces surplus electricity, which attracts miners. This additional power was traditionally sold to Brazil at bargain prices, but Bitcoin miners have recently been purchasing it at marginally higher rates. However, legislators argue that a series of power disruptions link back to illicit cryptocurrency mining activities, with about 50 occurrences since February.
Estimated by the National Electricity Administration of Paraguay, each illicit mining operation leads to damages and losses amounting to roughly $94,900. The total estimated yearly losses in the Alto Paraná region, where the Itaipu Dam is situated, may reach $60 million. "If the grid is overloaded by excessive drawing of electricity from low voltage lines, this can be harmful," Mellerud conceded.
This situation mirrors a previous event in Kazakhstan that resulted in regulatory measures against the sector and expulsion of unauthorized mining activities. Mellerud suggested that Paraguay and Argentina could potentially absorb the influx of American miners seeking to expand or relocate to countries with cheaper electricity fees, given the situation.
This issue arises as Bitcoin miners gear up for the approaching Bitcoin halving event slated for April 20, reducing miner rewards from 6.25 Bitcoin (approx. $434,000) to 3.125 Bitcoin (approx. $217,000).
Published At
4/8/2024 4:04:06 PM
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