Bitcoin Regulation in Paraguay – Bitcoin Magazine: Bitcoin News, Articles, Charts and Guides

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A few weeks ago, Paraguayan Congressman Carlitos Rejala sent us a translated version of the legislation aimed at clarifying the legal status of bitcoin and other cryptocurrencies in his country. Shortly after lawmakers in El Salvador – located just 3,000 miles away – established bitcoin as legal tender, many in the space were optimistic that this legislation would attempt to grant BTC similar status in Paraguay. .

This was not the case. While El Salvador’s final bill was only a few pages of text easily representing the most favorable and accommodating Bitcoin legal language ever passed, Paraguay’s first bill set a different tone. It seeks to establish bitcoin as property, rather than legal tender; it would require bitcoin miners to obtain government licenses for their operations, an apparent restriction on the free use of power to create value without authorization; and it detailed the sanctions and penalties for those who violate its proposed rules, which also included measures to protect cryptocurrency investors.

But two of the architects behind the proposed legislation argue that for their country, this bill and its detailed regulatory framework are necessary to foster Bitcoin innovation. While the absence of federal rules may be the cypherpunk view of many Bitcoiners, they feel that without them the Bitcoin industry cannot thrive in their home country.

Is regulation the best way to promote Bitcoin in Paraguay?

“Bitcoin as a legal offer, this will not happen in Paraguay at this time,” said Juanjo Benitez Rickmann, managing director of a Paraguayan cryptocurrency mining company who also sits on government fintech boards. . “We are a really stable country, a really stable economy, we have an inflation rate of three or 4%, we have a strong currency which is the guaraní, so everything is fine. We thought we had time to make a very good proposal for everyone.

An agricultural investor in the country recently reported that Paraguay’s economy had grown by more than 4% every year since the early 2000s, and that its middle class was also expanding during this time. Since then, foreign investment in the country has also increased. It is likely that this economic status means that the government there, as in most places in the world, does not feel the need to capitulate to Plan B, as El Salvador might. But Rickmann believes changes are needed if this foreign investment is going to spread to Bitcoin companies, especially miners.

“The whole bill is aimed at creating a healthy environment for an investor who wants to come to Paraguay and mine for bitcoins,” he said. “The reason we’re focusing on Bitcoin mining is because we know anyone can build a data center here in Paraguay… [But for] someone who wants to come to Paraguay to invest, not $ 1 million, maybe $ 30 million… they have to be really safe and comfortable with a law, a framework, which will help them to work safely. peace of mind.

The bill was signed in the Paraguayan Senate on July 15, and a watchdog committee is now ready to start “socializing” it with other members of the government, said Fernando Arriola Arza, a Paraguayan crypto miner. currency and government liaison who, along with Rickmann, said he “wrote about 90%” of the bill. The next steps would be for the relevant ministries to meet with the authors of the bill and share their thoughts, probably within the next ten days or so.

Will this settlement help Paraguay seize its bitcoin mining opportunity?

“There is also a geopolitical factor in the presentation of this bill,” added Arza, pointing to two hydroelectric dams that Paraguay operates with its neighbors Brazil and Argentina. “These massive hydroelectric dams generate about… 5.5 gigawatts of excess energy that we can consume. This energy is pretty much wasted. Some of this is sold in Brazil at a price close to zero. And the other part is sold to our other financial partner, which is Argentina, which has not yet paid us for five years. So there is an overall optimization of the energy use that is needed here and mining is a great opportunity for the country to consume this energy.

But to seize this opportunity, Arza said, billions of dollars of investment would be needed. Like Rickmann, he believes attracting overseas-based bitcoin mining companies is essential.

“We thought it would be prudent to establish a clear framework for international investors, especially investors from countries that prohibit this,” he explained, referring to China-based bitcoin miners seeking now new homes.

A key aspect of this framework is that it “would recognize virtual mining assets as industrial activities within the Ministry of Industry and Commerce”, according to a translated version of a bill. This is the key to navigating the legislative structure of Paraguay according to Arza.

“It’s supposed to be an industrial bill… We don’t want cryptocurrency mining to be seen as a financial service,” he said. “If we enter into the regulation of our industrial domain, with the Ministry of Industry, the central bank is not involved and the financial authorities are not involved. And that’s our main concern because in Paraguay, when the financial authorities are involved, they’re going to put this bill in a nice little tidy file and put it somewhere we won’t see it for another five years.

Control versus freedom

While this regulatory framework extends far beyond the bitcoin mining industry, this is clearly Rickmann and Arza’s goal. And the proposed mining license requirement the bill seemed to be one of its most onerous and burdensome provisions. Similar rules in Iran, for example, have apparently deterred a decentralized bitcoin mining industry, rather than encouraged it.

And it’s also worth noting that as cryptocurrency miners themselves entrenched, Rickmann and Arza would likely benefit from a government mining license requirement. But when they insisted that many in the Bitcoin community view regulation as antithetical to technology and movement, they argued that a libertarian approach would be untenable in their country.

“In Paraguay, things are moving differently,” said Arza. “The things we requested in the license are the things the government requires of you anyway to start one type of operation.”

Arza also pointed to a significant criminal presence in Paraguay – which he says is the second largest producer of cannabis in Latin America, despite being an illegal substance there – as a reason why laws are needed if Bitcoin finds a legitimate footing.

“If we don’t have a legal framework that protects us, business owners and international investors, from this kind of hate and crime, then we will never have a true civilized business here,” he said. . “We’re never going to grow up.”

Still, the pair seemed to feel their bill and their regulations in general were unpopular with the international Bitcoin community, and they were eager to clarify their purpose. Rickmann acknowledged that some changes may be needed to better serve Bitcoin adoption.

“And we think… we have to add in the proposal that if you spend, say, 50 kilowatts in your house or in your office, you don’t need to get a license for that,” he said. .

To date, Bitcoin has experienced remarkable growth around the world due to a lack of regulation. While favorable rules like El Salvador’s are celebrated, the regulation around an unlicensed, censored-resistant, and distributed monetary network is largely meaningless and unenforceable. But they provide at least a tangible measure, demonstrating the dominant attitude of a government towards this financial revolution.

With this bill, Paraguay emerges as a place where regulators recognize the immense commercial potential of Bitcoin. But it remains to be seen whether or not this potential can be developed in the way they hope.

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