Paraguay’s Senate passed legislation last week regulating bitcoin in hopes of the Latin American nation becoming the second country in the world to accept the cryptocurrency as legal tender.
Approval of the legislation follows months of discussions, debates and the development of the bill that would see cryptocurrencies taxed and crypto mining regulated and potentially result in the legalisation of Bitcoin, the most widely used cryptocurrency.
If that happens, Paraguay would be the second country in the world to recognise cryptocurrency as legal tender, after El Salvador adopted it in September, according to a tweet by Paraguayan Senator Fernando Silva Facetti, one of the three authors of the measure.
Paraguay’s Chamber of Deputies must pass the legislation and be signed by President Mario Abdo Benitez before becoming law. The lower chamber will discuss the bill in 2022.
Key parts of the bill, obtained by Capital.com, include:
- Creating a four-entity Application Authority to supervise the public offering of digital assets, prevent money laundering and supervise the country’s electrical needs in relation to crypto mining. The National Electricity Administration, National Securities Commission, Anti-Money Laundering Office and Industry and Commerce Secretariat would regulate activities. All mining setups will require approval and oversight by those authorities.
- Miners of cryptocurrency must obtain a Virtual Asset Mining License. Miners who fail to obtain the legal licence would be subject to sanctions.
- Creating “monitoring and control mechanisms for transactions involving cryptocurrency virtual assets.” Failure to comply with the transition monitoring system can lead to sanctions.
- Recognise virtual asset mining as “a new innovative and electro-intensive industry.”
- Give token holders the right to profitability or “benefit from the investment project, which is called a utility token.” In the case of a security token, the holder reserves the right to “a share of the capital used for the development of the project.”
- Trading entities, likely exchanges, “must inform the acquirer of the trading conditions with Virtual Assets, expressly notifying that the virtual assets are not recognised as legal tender, therefore, they are not backed by the Central Bank of Paraguay,” according to the bill.
Not El Salvador
The bill, known as Paraguay Bitcoin Law, was first promoted by Senator Facetti in July, weeks after El Salvador’s Congress passed its cryptocurrency laws. At the time, Silva told an in-country newspaper the bill’s aim was to regulate currency that was “already in widespread use.”
“This is not a legal tender, this is a commodity and the purpose of the law is to regulate and control this industry,” Silva was quoted in La Nacion, the country’s leading newspaper.
Later, Silva and other lawmakers clarified the legislation is different from what El Salvador’s politicians passed this summer.
In June, Reuters quoted Senator Carlos Rejala as saying, “It is a bill of digital assets and it differs from that of El Salvador because they are taking it as legal currency and in Paraguay it will be impossible to do something like that,” Rejala said.
Since that time, some politicians have said via Twitter and local press that they hope this legislation paves the way for bitcoin to become legal tender.
And like El Salvador, the bill would allow digital asset companies to finance their national operations with cryptocurrency, remit dividends abroad and capitalise their profits, according to La Nacion newspaper.
Energy
Paraguay is one of the world’s largest net energy exporters, with almost all its electricity needs met via hydroelectric power. Approximately 90% of the energy it generates is exported, mainly to neighbouring Argentina and Brazil.
Three hydroelectric projects – two of which are binational – provide power to every one of the nation’s 7.3 million citizens. The massive Itaipu Dam – run in partnership with Brazil – has the second-largest production capacity among hydroelectric projects globally, representing 86% of Paraguay’s power generation, and which covers all of the country’s domestic electricity needs.
Only six miles away is the smaller Acaray Dam, which provides approximately 3% of Paraguay’s generated power. The Yacyreta Dam, meanwhile, is run in conjunction with Argentina and is responsible for approximately 11% of power generated in Paraguay, according to the CIA Factbook, which is published by the US government.
Paraguay attractive to crypto miners
Paraguay has the lowest energy cost in the region, which is incredibly attractive to mining companies, at around $0.05 per kilowatt-hour.
According to the bill’s introduction, the South American country only consumes a third of its produced energy. The introduction continues that with regulations, cryptocurrency mining could consume “thousands of megawatts (of electricity) that Paraguay currently has as surplus.”
Since Paraguay is powered by renewable energy, it has lower tariffs than any other country in South America, which translates into digital assets that can be mined at basic environmental cost. That gives the nation an edge against other countries when cryptocurrencies companies are scouting locations.
This was seen recently when Chinese groups showed interest in starting mining facilities in South America. In October, the Chinese e-commerce and fintech company Future Fintech announced plans to construct a facility to mine bitcoin in Paraguay.
Read more: Is El Salvador’s adoption of bitcoin a good idea?
Read more: Bank of America sees upside to El Salvador’s bitcoin bet
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