Analysts are sounding the alarm on attempts to popularize bitcoin, saying cryptocurrency operators are carving out new niches for speculation and quick profit in vulnerable countries—usually to the benefit of connected elites and to the detriment of the environment.

In Latin America, bitcoin miners have set up shop in Paraguay, Venezuela and El Salvador, countries with endemic corruption and social deprivation. Critics say bitcoin mining provides societies with no lasting benefits, while demanding huge and escalating amounts of energy, water and materials, thereby adding to these countries’ environmental problems.

In June 2021, El Salvador became the first country in the world to make bitcoin legal tender. The measure was unexpectedly announced during a bitcoin conference in Miami, through a video message broadcast in English. There had been no prior public debate in the country. Just a few days later, President Nayib Bukele—an authoritarian ruler who has arrested over 80,000 people without warrants under a “state of exception,” declared to combat gang violence—sent the unicameral country’s Legislative Assembly a bill to legalize bitcoin. His party’s supermajority swiftly approved it.

In September 2021, the Legislative Assembly approved a $150 million trust fund to support the adoption of bitcoin. The move had some regional stakeholder support, winning praise from the Honduras-based Central American Bank for Economic Integration (Cabei), a multilateral development institution that has faced extensive criticism for its lending practices related to environmental damage, corruption and other concerns. In June 2021, after the announcement bitcoin would be legal tender in El Salvador, Cabei’s executive president at the time, Dante Mossi, praised El Salvador for “making history.”

Even so, the terms of a US$600 million loan from Cabei to El Salvador to support small and medium enterprises during the Covid-19 pandemic—the largest loan the bank had ever made—prohibited the country from using these resources to fund bitcoin-related activities.

But in 2023, after a lengthy investigation, the Organized Crime and Corruption Reporting Project (OCCRP), a U.S-based nonprofit, said only US$20 million of the money was used for its intended purposes, with $425 million directed to meet “general state obligations” and, of this, over $200 million to help legalise bitcoin.

From the beginning, Salvadoran economists and environmentalists were fearful bitcoin would expose the country’s economy to the volatility of the cryptocurrency market and lead to very heavy energy consumption. (See "Bitcoin plans raise energy concerns in El Salvador" —EcoAméricas, September 2021.)

The fears appear to have proved justified. The computerized mathematical puzzle solving, called mining, that is required to create new bitcoins, demands vast quantities of energy. Despite Bukele’s claims to the contrary, experts say El Salvador has found itself unable to provide the required energy without driving power prices nationwide to unacceptably high levels.

Carlos Martínez, lecturer in Electrical Engineering at the University of El Salvador, agrees. In an interview with EcoAméricas, he says bitcoin mining has been “a very bad business deal” for El Salvador because the cost of generating bitcoin far exceeded any income it received from the activity.

The government has also been challenged on its claim that geothermal energy was used to mine bitcoin. In June 2023, the government had announced plans for a “mining pool” to be called Volcano Energy. Through it, bitcoin mining companies would join forces to tap the Conchagua volcano in southeastern El Salvador as a source of electric power. The government plan also called for launching Volcano Bonds. These would be sold to raise US$1 billion for bitcoin mining infrastructure and construction at the base of Conchagua of Bitcoin City, an urban center envisioned as the focus of the region’s crypto economy.

However, work on the geothermal system that was scheduled to start in April 2024 was pushed back to January 2025 and, as of this month, had still not gotten underway.

Martínez is not surprised. “It is not an easy task to develop a geothermal field [an area which contains a well or wells capable of commercial production of geothermal resources.] It takes decades to put a geothermal power plant in operation.”

David Gerard, author of “Attack of the 50 Foot Blockchain,” one of the first books to explore the history of bitcoin, attributes the failure to unrealistic expectations.

“Geothermal power is, like anything else, a complex endeavor,” Gerard says. “El Salvador has decades of experience in geothermal, and they’re good at it, but you can’t just arbitrarily decide any given volcano will be a power source today, as Bukele did with the volcano for his Bitcoin City plan. Bukele has long been known for his habit of announcing grand plans that don’t happen.”

Martínez says that because it hasn’t been able to tap geothermal energy, “the government has simply diverted part of the national supply of energy to mine bitcoin,” even though some households in El Salvador still don’t have energy.

“We don’t have exact data because El Salvador isn’t a country with exact data,” he says. “But, as far as I can tell, almost 5% of the population, equivalent to about 100,000 households, doesn’t have access to electricity. This expenditure on bitcoin shows what the priorities of this administration are.”

The government was keen to encourage the use of bitcoin among the general population. In September 2021 it launched the Chivo digital wallet, which allowed citizens to make transactions in bitcoin, with a US$30 bonus given to those who downloaded it. But people remained mistrustful. Claudia Ortiz, an opposition member of the Legislative Assembly, says that the government wasted a great deal of money on the initiative.

“They invested US$200 million [in Chivo]. And it failed dramatically because people used Chivo for a very short time. They withdrew the $30, because, you know, in this country, $30 is like a week’s income for a family.”

A survey by the El Salvador-based University Institute of Public Opinion (Iudop) found that 88% of Salvadorans did not use bitcoin at all in 2023 and 49% disagreed with the government spending public money to encourage bitcoin use.

With the prospect of cheap geothermal energy a pipedream, the cost of energy to mine bitcoin became prohibitive. Bitcoin mining has become more costly due to the increased complexity of the computing tasks involved, as well as the rising costs of the necessary computer hardware and other factors. Meanwhile, not only does bitcoin mining consume vast quantities of energy, but also prodigious amounts of water to cool the networked computers that perform it.

While in 2010 an investor could mine bitcoin with an ordinary desktop computer, by 2025 that investor needs massive supercomputers housed in a data center. In El Salvador, critics have increasingly suggested that the real reason for legalizing bitcoin, which had created few tangible benefits, was simply to create opportunities for corruption and money laundering. Opposition politician Johnny Wright Sol says bitcoin can be used as “a means to move money around to acquire assets without being traced back.”

Still, it soon became clear that the cost of energy was too high in El Salvador to make bitcoin mining competitive. “Every bitcoin miner is in direct head-to-head competition with every other bitcoin miner in the world,” says “Attack of the 50 Foot Blockchain” author Gerard. “This means mining goes where electricity is cheapest. Power in El Salvador is 15-20 [US] cents per kilowatt hour. The cheapest I’ve occasionally seen it is 13 cents. It’s simply not viable to mine bitcoins in El Salvador.”

The International Monetary Fund (IMF) delivered a major blow to Bukele’s bitcoin plans earlier this year. Moody’s, the influential credit-rating agency, had calculated that bitcoin had cost El Salvador US$375 million, a sum that “far exceeds the profits on bitcoin holdings, which could still evaporate.”

When the IMF approved a US$1.4 billion bailout for El Salvador in February, it insisted the government halt bitcoin purchases and unwind the Chivo wallet. In response, the Legislative Assembly at the urging of the Bukele administration voted to abolish bitcoin’s status as legal tender by January 2026.

These actions limited but did not altogether end efforts to spur bitcoin use in the country, however. This month the Legislative Assembly approved a law allowing investment banks with at least US$250,000 in freely available funds to issue bonds, create public-private partnerships, and issue digital assets, including bitcoin.

Meanwhile, bitcoin miners have turned to other Latin American countries in their quest for financial returns. As one study put it, bitcoin is like “dental plaque-disclosing tablets,” with bitcoin mining gravitating to areas of industrial decline, endemic corruption, social deprivation and cheap energy.

Paraguay became an obvious target, since it has few cryptocurrency rules, taxes are ultra-low, and the legal system is rackety. But the main attraction is undoubtedly cheap electricity. Paraguay owns half of the Itaipú Dam, one of the world’s most powerful hydroelectric stations, with codeveloper Brazil owning the other half. Paraguay can only absorb 20% of its share of the energy that Itaipú and its other dams produce, prompting the country to sell its surplus power at well below market prices to Brazil.

Bitcoin miners are now allowed to use this surplus power provided they pay a set tariff to Paraguay’s Power Authority (ANDE), the state energy firm.

Investors from all over the world have moved in, building cryptocurrency-mining facilities now said to number in thousands.

The main bitcoin mining center is at Ciudad del Este on the Paraná River on the border with Brazil. Armed guards patrol warehouses on the edge of the city where dozens of internet-connected server farms are mining cryptocurrencies, mainly bitcoin.

One of the first projects was the giant Golden Goose, built in 2018 by Commons Foundation, a South Korean-based firm. Cheap energy was clearly the main attraction, as it cost $26,170 to mine one bitcoin in South Korea, compared with $1,387 in Paraguay.

The crypto mining business continued to expand chaotically, causing the government to rethink its policy. In 2022, ANDE stopped supplying power to some mining companies that allegedly were stealing energy valued at $400,000 per month, in part by rigging power meters.

Also in 2022, then-President Mario Abdo vetoed a bill that sought to recognize cryptocurrency mining as an industrial activity. His veto order states crypto mining is “characterized by its high consumption of electrical energy, with intensive use of capital and little use of labor.”

The order also forecast that if crypto mining growth continued so rapidly, Paraguay might be forced to import energy in the future, an extremely bleak forecast for a country with such energy abundance.

Noise and blackouts

Those living near crypto-mining computer centers experience impacts, among them noise pollution from the machines, which are never turned off. Irene Brizuela—a 32-year-old nurse who lives close to a bitcoin mining farm in Villarica, in Paraguay’s department of Guairá—has a severely autistic son, aged 5, who began to tremble and cry when he first heard the noise.

“He was frightened of the sun and the moon, because he didn’t know where the noise came from,” Brizuela said.

Local residents eventually got the Public Prosecutor’s Office to charge the manager with emitting harmful noise. The company—Dyn Ingeniería, a subsidiary of the Canadian firm Bitfarms—agreed to reduce noise levels and thus far has avoided prosecution.

Another local impact is power blackouts imposed in part because of heavy crypto-mining electricity usage. According to ANDE, crypto mining consumes as much energy in six months as 47,464 families consume in a year.

To complicate matters, the theft of electricity is rife. Illegal bitcoin miners in Paraguay reportedly steal up to US$60 million worth of power every year—enough to light a city.

Recently, the Paraguayan government has pushed back, shutting down more than 70 illegal bitcoin-mining operations, according to ANDE. But, so far, the authorities have not managed to eliminate the problem.

Diosnel Alarcón, head of the National Police’s cybercrime unit, said cryptocurrency was used to launder US$4 billion obtained through fraudulent activities in 2023 and 2024. Some scams aren’t even based in Paraguay, but bitcoin operations in the country are used as transit points for laundering funds and moving them elsewhere.

In Venezuela, bitcoin emerged after its currency, the bolivar, was rendered practically valueless after the country suffered one of the world’s worst periods of hyperinflation during 2016-2018. More than three million Venezuelans left the country then—a number that has since climbed to nearly 8 million—as all manner of staple goods became unaffordable and crime soared.

Emergency currency

Many Venezuelans working abroad turned to bitcoin as an alternative to the bolivar when sending money to family members back home. That Venezuelans resorted to such a volatile currency as bitcoin—which lost four-fifths of its value in a matter of months in 2017-2018—indicated how desperate they had become to find an alternative to the bolivar.

In an interview with EcoAméricas conducted on the Mastodon platform, Alberto Cottica, an environmental economist at Spain’s University of Alicante, argued crypto-mining poses manifold dangers for no apparent benefit.

“We are suffering a great deal of harm (energy consumption, climate change, materials) to buy another harm (speculative financial assets, i.e. a casino [culture]), plus money laundering and a business model for ransomware,” he wrote. “And we get nothing in return.”

Agrees Andrew Nickson, an expert on public management and Latin American studies at England’s Birmingham University: “Bitcoin mining does nothing to transform the economy from commodity extraction towards industrialization. In fact, it operates as a new form of primary extraction and reproduces historical conditions of vulnerability and inequality.”

Adds Nickson: “Bitcoin exploits the psyche of most humans—they want to wake up one day and find they are billionaires.”