El Salvador’s Bitcoin Mining Proposal Hits Many Obstacles

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El Salvador is one of the countries in the world that has made the most progress in harnessing geothermal energy, which it has in abundance, like its neighbors in Central America. CREDIT: LaGeo

SAN SALVADOR, Jul 19, 2021 (IPS) – That a country like El Salvador, poor and with many social needs, would embark on an effort to attract what is called bitcoin mining, which requires a huge amount of energy and does not generate a large number of jobs, is an extravaganza that many find it difficult to digest.

“In El Salvador, financial resources are not plentiful, they are not well distributed, we are fighting for climate and / or energy justice, and I think this will definitely make the situation worse,” said environmentalist Ricardo Navarro , director of the Salvadoran Center for Appropriate Technology. , a local affiliate of Friends of the Earth International, told IPS.

Analysts and economists also don’t fully understand the ultimate goal of the Salvadoran government’s decision to make bitcoin legal tender, as President Nayib Bukele announced in a video released at the Bitcoin 2021 conference, which s ‘is held June 4-5 in Miami.

“I have the impression that this is an improvised decision, without any technical basis,” economist Carlos Acevedo, former president of the Central Reserve Bank of El Salvador (BCR), told IPS. .

Many of the audience are also racking their brains to try to understand Bukele’s movement.

A Francisco Gavidia University survey released on July 8 found that 95% of those polled said the US dollar was the currency they valued for the stability of their household economy, and only 1% said that it was bitcoin.

Bitcoin mining and villages without electricity

Geothermal energy has been suggested as a source of bitcoin mining in the country, but it is not entirely clear where the Bukele government will get the amount of power needed to run the “mining” computers, they said. said experts consulted by IPS.

Bitcoin mining is the process by which hundreds or thousands of powerful computers, housed in facilities called “mining farms,” attempt to solve the complex mathematical problems of the Bitcoin algorithm.

When solutions are found, after intensive consumption of electricity, a bitcoin is said to have been “mined”, as if it had been mined from the ground. It is validated by the rest of the “minors” or computer systems and is put into circulation.

But while the government seeks to promote this activity, there are villages that still do not have electricity.

To tell their stories, IPS visited villages and communities in rural El Salvador who, with great sacrifice and effort, set up their own small hydropower projects for self-sufficiency, as they were marginalized by both companies. private companies that distribute electricity in the country.

In this Central American country of 6.7 million people, 97.6 percent of the population has electricity. But in rural areas, the proportion drops to 95.2 percent. The remaining 4.8% use candles, lanterns and other means to light their nights, according to the Multiple Use Survey, released in 2020.

The head of the community of Joya de Talchiga, Juan Bentez, sits at the edge of the dam that the villagers built to create the mini hydroelectric power station of El Calambre, which ultimately provided electricity to the 40 families in this hamlet. mountain range in eastern El Salvador. CREDIT: Edgardo Ayala / IPS

“I would see it favorably if they said: listen, let’s see how we can increase geothermal energy by opening wells and producing electricity for townships that don’t have any,” Navarro said.

Internationally, environmental criticism of bitcoin mining focuses on the enormous amount of electricity it requires, enough to light entire cities or even countries, and the generation of greenhouse gas emissions that it requires. that implies.

“Most bitcoin mining is in China, where two-thirds of the mix is ​​dirty coal-based energy,” which is cheap because this country has invested in this kind of energy infrastructure, from sustainability and environment, Juan Marco Lvarez told IPS. .

But the idea that the Salvadoran government is devoting its efforts to attracting cryptocurrency “miners”, taking advantage of the fact that many are leaving China, does not quite matter, analysts say.

A law to bitcoinize the country

The Salvadoran legislature, dominated by President Bukele’s Nuevas Ideas party, passed the Bitcoin law on June 9, making it legal tender and making this small Central American country the first country in the world to legalize crypto -change.

The dollar has been the official currency here since El Salvador dollarized its economy in November 2000, and it will coexist with bitcoin from September 7, when the new law takes effect.

Local and international economists have criticized the decision of Bukele, known for his personalist style of government, in which any important measure is announced by him via a tweet rather by officials in the region or the ministry in question.

The Ahuachapn geothermal power station, one of two of its kind in El Salvador that processes renewable energy from heat from deep within the earth. CREDIT: Edgardo Ayala / IPS

Fictitious geothermal wells?

On June 9, Bukele tweeted: “I asked the president of LaGeo (our state-owned geothermal energy company) to implement a plan to provide bitcoin mining facilities with energy from our volcanoes: good market, 100% clean and emission-free. It will evolve quickly!

He added that LaGeo engineers had just informed him that they had opened a new well that would provide some 95 MW of 100% clean, zero-emission power from El Salvador’s volcanoes.

The tweet was accompanied by a short video showing a couple of LaGeo employees trying to control a jet of high pressure steam erupting from a pipe that is part of what is considered a newly drilled geothermal well.

We’re “starting to design a whole mining farm around this one,” Bukele said.

However, the president did not say whether it was a well located at one of the country’s two existing geothermal stations, or a new one in an unknown location.

One factory is located in the Ahuachapn department, in the west of the country, and the other near Berln, a town in the eastern department of Usulutn.

Together, the two stations have an installed capacity of 204.4 MW and a net production equivalent to 21.8% of the electrical energy generated in El Salvador, making it one of the most geothermal energy-using countries. According to official data, the rest of the electricity mix is ​​made up of hydroelectricity (27.75%), solar energy (10.78%), biomass (17%), bunker fuel (15.94%) and diesel (0.04%).

There has been a lot of speculation about the actual existence of the announced new well, as information is scarce and little more is known than what the president said in his tweet.

“For starters, 95 MW geothermal wells do not exist in any country in the world. I haven’t seen lists of the most productive wells, but as far as I know, the most productive well in the world must be around 40 MW, ”said former LaGeo president Jos Antonio Rodrguez, in an article on the social network.

The expert added that the well that produces the most power in El Salvador is the TR-18th, at the station in Berlin, which provides around 20 MW.

On the other hand, drilling a geothermal well is expensive, between $ 15 million and $ 20 million, which makes it infeasible in the short term, although it could be achievable in the medium term, in four or five years, said lvarez. .

For his part, Acevedo, the former president of RBC, said he saw no incentive for “minors” to move to El Salvador, given the high cost of electricity, the average price of which is around 12 cents per kilowatt / hour, compared to the three or four cents it costs in more competitive countries, such as China or Kazakhstan.

A solar park in Salvador’s central department of La Paz was the country’s first solar power plant, with 320,000 photovoltaic panels, and is one of the largest in Central America. CREDIT: Edgardo Ayala / IPS

In addition, the tropical climate of El Salvador, where the average temperature is around 30 degrees Celsius during the day, is not the best environment for the installation of computer equipment for mining, which generates a lot of heat. . This is why it is generally installed in countries with colder climates.

“In a country like Iceland, you need air conditioning systems to cool computers, imagine a little in the case of El Salvador,” commented the economist, who chaired the BCR between 2009 and 2013, during the first government of the left party Farabundo Mart. National Liberation Front.

A viable way to attract them, however, would be for companies interested in coming to “exploit” here to develop their own solar power plants – the cleanest energy – for self-supply, said environmentalist lvarez.

Otherwise, they would have to connect to the national grid and that would mean taking power away from the public, including industry, he said.

An experiment with an expiration date

Even before it goes into effect, experts predict that bitcoin could end as soon as possible in El Salvador, as it faces a series of contradictions with a dollarized economy, for example with regard to foreign trade, which is also tied to the dollar, Acevedo said.

The economist pointed out that El Salvador pays for imports of goods and services, which in 2019 amounted to $ 12 billion, with exports and remittances, each of which brought in $ 6 billion that year. , which meant a balance of payments.

But if, say, half of remittances were sent in bitcoin, as the current government expects, so Salvadorians abroad wouldn’t have to pay the cost of transfers, then a $ 3 billion gap. of dollars would be generated in the balance of payments. to pay for imports of goods and services, he said.

“There, the accounts don’t add up anymore, because we would have to pay 12 billion but we would only have 9 billion dollars,” Acevedo said.

“That’s why I think it won’t last long,” he said.

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