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When we talk about cryptocurrency mining in Paraguay, the scorching heat is just the tip of the iceberg. With temperatures above average in the country and air conditioning in full swing, the country’s electrical grid is on the verge of collapse. The overload on Paraguay’s electrical system became a topic of political debate this week.

Weather, however, is not the only factor that is straining the power grid. The government claims that illegal cryptocurrency mining farms are gobbling up gigawatts like there’s no tomorrow.

To deal with this, a group of Paraguayan legislators presented a Bill to try to temporarily reduce the activity of the cryptocurrency mining industry. The idea is to suspend all activities related to cryptocurrencies, without exceptions:

“The creation, preservation, storage and commercialization of virtual or cryptoactive assets, cryptocurrencies and the installation of cryptocurrency mining farms in Paraguayan territory are temporarily prohibited.”

The project proposes that the ban last 180 days or until a regulation is established. Furthermore, the project also foresees that ANDE (National Electricity Administration of Paraguay) can guarantee sufficient infrastructure to sustain the energy demands of cryptocurrency mining without compromising the population.

Bill has problematic loopholes

The problem with the new project is not the attempt to protect the population against lack of electricity. The bill’s broad language could also inadvertently prohibit other cryptocurrency activities. For example, it could ban cryptocurrency 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 cryptoassets.

Paraguay wants to ban cryptocurrency miningParaguay wants to ban cryptocurrency mining

Furthermore, violations of the proposed law would be sanctioned in accordance with regulations governing the national financial system. The Central Bank of Paraguay could apply measures, in addition to the criminal offenses provided for in Law No. 1160/1997 “Penal Code” and other applicable administrative sanctions.

According to the bill, the lack of clear regulation for cryptocurrencies left the door open for all kinds of problems. The project highlights issues ranging from consumer protection to potential criminal activities, such as money laundering and tax evasion.

Illegal mining would be the problem

Despite the broad wording of the project, it appears that the idea is to address a very specific problem: the illegal cryptocurrency mining farms that have been popping up across the country. These clandestine operations have consumed electricity and evaded existing local regulations.

For example, in a recent raid at the Quindii Radio facility, a staggering 700 active ASICs were discovered. It was a cryptocurrency mining farm so massive, it required as much electricity as the city where it was located.

Furthermore, this is not an isolated case. Government officials say these illegal operations cost the state-owned utility, ANDE, more than $60 million a year in lost revenue.

Bill raises debate on cryptocurrencies

The project still depends on approval to become Law, but it has already provoked a series of criticisms from local experts.

For example, in a long thread of tweets, Luis Benitez, a free software activist with strong involvement in the cryptocurrency community, explained why the proposed law could do more harm than good.

“The law does not distinguish between illegal and legitimate uses of cryptoassets. Regulation must be precise, protecting legitimate users without stifling the potential for economic and technological growth,” he said. “It is vital to consider the unintended consequences of the ban. This could drive illegal mining or shift legitimate activities out of the country, losing revenue and economic opportunities.”

Benitez further stated that a more balanced approach would be to regulate mining that requires a large amount of electrical energy, while promoting the development of energy-efficient tokens.

“The Hashpy community will mobilize again so that the bill does not move forward,” he said in an interview with Decrypt. “We will request a public hearing to once again explain the alternatives that Paraguay has in relation to regulating part of the crypto activity. Prohibiting technological advances has never been good for any economy.”

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