Here's some unfortunate news out of Paraguay. It seems that the Paraguayan government has decided to follow the footsteps of Quebec, Kazakhstan, Washington state, and many other jurisdiction who have made the boneheaded decision to single out bitcoin miners and levy discriminatory taxes on them for the simple act of purchasing electricity and using it to run computers. This isn't very surprising considering the history of bitcoin mining and its relationship with uneducated governments, but it is certainly disheartening nonetheless.

These discriminatory actions are particularly perplexing because anyone who has the rudimentary ability to think through second and third order effects can clearly see that they are embarrassing self-owns by these governments. Bitcoin miners have business models that are extremely price sensitive on the electricity side of things. Margins are typically very thin and a miner's goal is to drive down their core input price; electricity. They typically find the cheapest energy where energy is stranded or utilities companies have excess cheap electricity. In the case of bitcoin miners in Paraguay, the latter scenario is what they are leveraging.

As Nano mentions in his thread above, Paraguay has an abundance of excess electricity produced by the large hydroelectric facilities spread throughout the country. Here's a breakdown of Paraguay's energy production, consumption and exports.

If you run the numbers above you'll notice that when you subtract the energy consumption of Paraguayan citizens and the energy they export from the overall amount of energy produced there is a gap of unused energy that represents 17.5% of everything that is produced. We're talking gigawatts of electricity that is produced and wasted. Potential business and tax revenue completely left on the table.

I am not an expert on the makeup and maturity of Paraguay's electricity grid, but it seems like there is either a demand problem caused by a lack of the residential consumers necessary to consume all of that electricity or an inability to get that electricity to those consumers. Either way, that electricity is being wasted and bitcoin miners - whether they're acting as demand to soak up that excess supply or a temporary revenue producer for the hydroelectric dams as they build out transmission lines - are perfectly suited to eliminate that waste. Instead of allowing the market to be efficient by allowing miners and utility companies to engage in a free market exchange at a price determined by the market, the Paraguayan government has decided that it needs to, for one reason or another, step in and perturb the natural pricing mechanism by levying discriminatory taxes on bitcoin miners that makes it less appealing for them to engage in the transaction.

The result of all of this is that miners get priced out of being able to run their businesses profitably if they're not self-mining with top of the line hardware. Put another way, they are disincentivized to purchase electricity from the utilities companies, which results in less revenue for those utilities and less tax revenue for the Paraguayan government. The miners lose. The utility companies lose. And the government winds up losing. Galaxy brain level central planning.

This type of repulsive and counterproductive discrimination needs to end. It is a net negative for everyone involved. The silver lining of all of this is that the state gets less revenue. Maybe, if we're lucky, they'll centrally plan themselves into insolvency, at which point the free market will be able to return and facilitate productive economic activity.

Final thought...

Good things happen when bitcoiners get together in person and bounce ideas off each other.

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