Economic Situation in Paraguay
Over the past 20 years, Paraguay has seen strong economic growth. This growth has been driven by better prices for the products the country exports and by stable economic policies. These policies include important changes, like a system to control inflation and laws to manage government spending responsibly.
From 2003 to 2023, Paraguay’s economy grew by an average of 3.6% each year, outpacing many other countries in the region. Because of this progress, Paraguay’s credit rating was improved to “investment grade” by the rating agency Moody’s in July 2024.
Economic growth has played a big role in reducing poverty in Paraguay over the last 20 years. In 2003, nearly half of the population lived below the poverty line, based on the standard for upper-middle-income countries (US$6.85 per day per person in 2017).
By 2023, this number dropped to an estimated 17.6% of the population. Thanks to good weather for soybeans in the 2023/2024 season, Paraguay’s economy is expected to grow by 3.9% in 2024.
However, the growth could be even higher if it weren’t for irregular rainfall, which caused a 3.7% drop in electricity and water production in the first half of 2024 compared to the same time last year.
With steady growth and controlled inflation, poverty is expected to fall to 16.8% of the population in 2024. However Droughts from 2019 to 2022, along with the COVID-19 pandemic, have slowed economic growth and made it harder to reduce poverty.
To cope with these challenges, Paraguay needs to strengthen its ability to handle shocks. Key priorities include maintaining stable economic policies to help businesses and people in need, investing in better infrastructure to withstand climate events, and continuing to diversify the economy.
“Paraguay’s low energy costs make it the perfect home for crypto miners.”
Current State of Cryptocurrency Adoption in Paraguay
Cryptocurrency adoption in Paraguay has been growing in recent years, though it is still in the early stages compared to other countries. Paraguay has shown interest in digital currencies, driven by a combination of economic factors, technology, and government involvement.
Paraguay has taken a significant step in the blockchain arena by establishing the Paraguayan Blockchain Chamber, aimed at fostering financial innovation on a sovereign blockchain.
The chamber’s spokesperson and director, Ricardo Prieto, discussed the initiative’s main focus: developing blockchain solutions for both public and private sectors, including government, finance, commerce, civil, and military ecosystems.
Paraguay is quickly becoming a hotspot for cryptocurrency mining due to its low electricity costs, mostly derived from hydroelectric power. Many international cryptocurrency miners have been drawn to the country to take advantage of the affordable energy, which is essential for the energy-intensive process of mining.
This has led to an influx of investment in the local economy, with some companies setting up large-scale mining operations. Business and Consumer Adoption. In terms of everyday use, cryptocurrency is not yet widely accepted by businesses or consumers in Paraguay.
However, there are some signs of progress. A few businesses, particularly in the tech and digital sectors, accept cryptocurrency as a form of payment. Additionally, there is growing interest among Paraguayans, especially younger generations, in using cryptocurrencies for investment, trading and remittance
“With cryptocurrency, Paraguay can make international transactions faster and cheaper.”
Cryptocurrency Law in Paraguay
Paraguay is taking stronger action against illegal cryptocurrency mining and power theft. The Paraguayan Senate passed new reforms to help authorities, like the National Power Administration (ANDE), crack down on criminals who mine cryptocurrency using stolen electricity.
These changes will give authorities more power to impose severe penalties on those involved in these illegal activities. The Paraguayan Senate has approved new reforms that change the penalties for stealing energy for cryptocurrency mining.
Now, individuals or companies caught stealing energy to mine cryptocurrencies could face up to 10 years in prison. Those caught stealing energy for other reasons could be sentenced to up to three years in jail.
The Senate has approved changes to a law passed by the lower chamber. Under the new rules, stealing energy for reasons other than cryptocurrency mining can lead to up to 3 years in prison or fines. However, stealing energy for cryptocurrency mining can result in up to 10 years in prison.
These punishments will apply if someone is caught making illegal connections to the power grid, tampering with existing connections, messing with meters, or using other methods to avoid paying for electricity.
“Paraguay’s stable energy resources give it an edge in global crypto mining.”
Paraguay’s Energy Source and its Attractiveness to Crypto Miners
Paraguay is one of the top energy exporters in the world, with almost all of its electricity coming from hydroelectric power. About 90% of the electricity Paraguay generates is sold to neighboring countries, mainly Argentina and Brazil.
The country has three major hydroelectric projects, two of which are shared with its neighbors. The Itaipu Dam, managed by Brazil, is one of the largest in the world and produces 86% of Paraguay’s electricity, meeting all of its domestic energy needs.
Nearby, the smaller Acaray Dam provides about 3% of the country’s electricity. The Yacyreta Dam, shared with Argentina, generates around 11% of Paraguay’s power. Together, these projects provide enough electricity for Paraguay’s 7.3 million citizens and leave plenty for export.
Paraguay has the lowest energy costs in the region, at about $0.05 per kilowatt-hour, making it very appealing to mining companies.
The country uses only about a third of the electricity it produces. The rest, which is a large surplus, could be used for activities like cryptocurrency mining, potentially consuming thousands of megawatts of energy.
Paraguay has the advantage of using renewable energy, which keeps its energy costs lower than any other country in South America. This makes it an attractive location for mining digital assets like cryptocurrencies, as the environmental impact is minimal.
This became clear when companies began looking for places to set up mining operations in South America. In October, Future Fintech, an e-commerce and fintech company, announced plans to build a Bitcoin mining facility in Paraguay.
“Bitcoin’s decentralized nature could help Paraguay reduce reliance on traditional banks.”
Regulatory Environment and Government Actions
Paraguay’s government has taken some important steps toward cryptocurrency adoption. In 2021, the Paraguayan Congress passed a bill that would legalize cryptocurrency and its use for business activities. This law aims to provide a clear framework for cryptocurrency miners, exchanges, and businesses, helping them operate more securely.
The bill also known as Paraguay Bitcoin Law was introduced by Senator Facetti in July, just a few weeks after El Salvador’s Congress passed its own cryptocurrency laws. At that time, Silva explained in a local newspaper that the goal of the bill was to regulate a currency that was already being widely used.
“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.
In June, Reuters reported that Senator Carlos Rejala said, “This bill is about digital assets, and it’s different from El Salvador’s because they made Bitcoin legal currency. In Paraguay, that won’t be possible.”
Similar to El Salvador, the bill would let digital asset companies fund their operations in the country with cryptocurrency, send profits overseas, and use their earnings to grow their business, according to La Nacion newspaper.
Challenges to Cryptocurrency Adoption in Paraguay
Paraguay faces some challenges in Cryptocurrency adoption, some of which are:
Limited Understanding and Awareness
While cryptocurrencies have gained attention in global media, many people in Paraguay still have limited knowledge about how they work. Cryptocurrencies can seem complex, and without proper education and understanding, people are less likely to use them.
There is a need for more educational programs and campaigns to help the public understand the potential benefits and risks of cryptocurrencies. Until more people are educated, it will be hard for cryptocurrencies to gain widespread acceptance in the country.
Volatility of Cryptocurrency Prices
Cryptocurrencies are known for their price volatility. The value of digital currencies can change rapidly within a short period, which can make them risky to use as a store of value or for daily transactions.
For example, the price of Bitcoin can go up or down by thousands of dollars in a matter of days or even hours. This makes it difficult for businesses and consumers to rely on cryptocurrencies for stable payments.
In Paraguay, where the economy is already unstable in some areas, this high volatility makes people more cautious about adopting cryptocurrencies.
Concerns Over Security and Fraud
Cryptocurrency transactions are often irreversible, meaning once a transaction is made, it cannot be undone. This can be risky, especially for people who are not familiar with how cryptocurrencies work.
Additionally, cryptocurrency exchanges and wallets can be vulnerable to hacking, which has led to losses for users in the past. Many Paraguayans may fear losing their money due to fraud or security breaches, making them less likely to adopt cryptocurrency.
Social and Cultural Barriers
In Paraguay, like in many countries, people have been using traditional financial systems for generations. Changing people’s habits and attitudes toward money can be difficult.
Some may view cryptocurrencies with skepticism or see them as something only for tech-savvy people or investors. Overcoming these cultural barriers will take time and education, as well as real-world examples of how cryptocurrencies can benefit individuals and businesses.
“Crypto adoption in Paraguay could lower the cost of living by reducing financial transaction fees.”
Potential Benefits of Cryptocurrency Adoption in Paraguay
Cryptocurrency is becoming a popular topic around the world, and many countries are starting to note the benefits of the use of digital currencies like Bitcoin, Ethereum, and others. Paraguay is one of the countries where cryptocurrency adoption could bring significant benefits such as:
Boosting the Economy
Cryptocurrency could help boost Paraguay’s economy by attracting new businesses and investments. Since cryptocurrencies are digital, they offer global access, meaning foreign investors or companies could enter the Paraguay market more easily. This could lead to job creation, increased tax revenues, and overall economic growth.
Increased Financial Inclusion
One of the major benefits of cryptocurrency is its ability to provide financial services to people who don’t have access to traditional banking. In Paraguay, people can access financial services using just their smartphones and the internet. This could lead to better economic opportunities for people in underserved communities.
Lower Transaction Costs
Using cryptocurrencies for transactions can be cheaper than traditional banking methods, especially for international payments. International money transfers can often come with high fees and long wait times.
With cryptocurrencies, these transactions can be completed faster and with much lower fees. This could benefit businesses and individuals who need to send money across borders, especially in a country like Paraguay with many connections to international markets.
Attracting Cryptocurrency Businesses
Paraguay could position itself as a hub for cryptocurrency businesses and technology companies. By adopting favorable laws and regulations for cryptocurrencies, Paraguay could attract blockchain startups and other cryptocurrency-related businesses. This could create a growing tech industry, leading to more job opportunities, innovation, and growth.
Energy Advantage
Paraguay is known for having abundant and cheap energy, especially from its hydroelectric power sources. This makes it an attractive place for cryptocurrency mining.
Mining is the process of using powerful computers to solve complex problems that keep the cryptocurrency network running.
In other countries, mining can be expensive due to high energy costs. But in Paraguay, low-cost energy could make cryptocurrency mining a profitable activity. This could lead to more investments in the mining industry, bringing more revenue into the country.
Improved Transparency and Security
Cryptocurrencies run on blockchain technology, which is known for its security and transparency. Blockchain is a decentralized system where transactions are recorded on a public ledger, meaning everyone can see them, but no one can alter them.
This can help reduce corruption and fraud, as it is harder to manipulate the system. For Paraguay, this could mean more trust in financial transactions and government activities.
Fostering Innovation
The adoption of cryptocurrency could encourage innovation in various sectors, including finance, technology, and education.
As people and businesses start using cryptocurrencies, there will likely be more demand for better technologies, tools, and services. This could lead to the development of new solutions that improve the way Paraguayans do business and interact with money.
Enhancing Remittances
A large number of Paraguayans live abroad and send money back home. Cryptocurrency could make remittance services faster, cheaper, and more reliable.
Instead of relying on traditional remittance companies that charge high fees, Paraguayans could use cryptocurrencies to send money across borders with much lower costs. This would help families in Paraguay save more money and use it for other important needs.
Potential for Growth in Tourism
As cryptocurrencies gain popularity around the world, more tourists may choose to spend their digital currencies while traveling.
By adopting cryptocurrency, Paraguay could become a more attractive destination for cryptocurrency enthusiasts and tourists who want to use their digital assets to pay for goods and services. This could help grow the tourism industry and bring in more revenue for local businesses.
Current Crypto Usage in Various Sectors in Paraguay
Cryptocurrency is becoming more popular worldwide, and Paraguay is no exception. The country is experiencing a growing interest in digital currencies like Bitcoin, Ethereum, and others.
This growth is not just among individuals but also in various sectors. Here’s a simplified look at how different industries in Paraguay are using cryptocurrencies today.
Retail and E-commerce
Some stores, both online and physical, are starting to accept cryptocurrency as payment in Paraguay even with the use of a crypto debit card. This trend is especially popular in urban areas.
Customers can now buy clothes, electronics, and even groceries using digital coins. Some e-commerce platforms offer discounts to encourage crypto payments, making it a convenient option for tech-savvy shoppers.
Real Estate
The real estate sector is one of the fastest adopters of cryptocurrency in Paraguay. Properties are being listed for sale with the option to pay in Bitcoin or other cryptocurrencies.
This method is attractive to international buyers, as it simplifies cross-border transactions and avoids high banking fees.
Mining Industry
Paraguay’s affordable electricity and favorable climate have made it a hotspot for cryptocurrency mining. Mining companies and individual miners are setting up operations to take advantage of the low costs. This has led to a boost in local jobs and investments in infrastructure.
Finance and Banking
While traditional banks are cautious about cryptocurrencies, some financial institutions in Paraguay are starting to explore blockchain technology.
This includes faster money transfers and secure digital wallets. Fintech startups are also offering crypto-related services, making it easier for people to trade and store their digital assets.
Conclusion
Paraguay is making strides in cryptocurrency adoption, particularly in mining and legal frameworks. However, there is still a long way to go before digital currencies are widely used by the general population. The country’s future in crypto space will depend largely on ongoing governmental support, technological advancements, and educational efforts to increase awareness among its people.
While Paraguay has the potential to become a leader in cryptocurrency adoption in South America, there are several challenges that need to be addressed first. However, with the right support, education, and infrastructure development, Paraguay could be well on its way to embracing cryptocurrencies as a mainstream form of payment and investment in the future.
By leveraging its energy resources and promoting a crypto-friendly environment, Paraguay could position itself as a leader in the digital currency revolution
