The country is used to drug busts and bank heists. But the hooded gunmen who recently burst into a warehouse in Minga Guazú, in Paraguay’s rural east, weren’t after cocaine, weed or cash. Instead they sped off with 150 sophisticated computers that had been secretly hooked up to the grid. The shaken caretaker called the police. But when they came, he declined to reveal who owned the clandestine bitcoin-mining operation.

In recent years, Paraguay has become a mecca for bitcoin miners. So-called “cryptocurrency farms” are springing up inside disused factories, half-finished tower blocks, and containers on cattle ranches. Paraguay’s taxes are ultra-low, its politics are predictable, and the necessary gadgets can be imported inexpensively, explains Fernando Arriola of the Paraguayan Fintech Chamber, a lobby group. In addition, the legal system is rackety and, above all, the country has cheap electricity to burn. Though poor, small in population and short of manufacturing, Paraguay owns half the output of Itaipú, a colossal hydroelectric dam it shares with Brazil. Miners are allowed to use this spare power to generate digital assets like bitcoin, provided they pay a set tariff to ande, the state energy firm. Some 50 companies do so.

Others prefer not to. ande says that power worth some $60m a year, enough to light up a city, is stolen by unlicensed miners. This annoys many Paraguayans. The country’s creaking transmission lines are increasingly overloaded. Asunción, the capital, suffers from regular power cuts, causing food to rot and office workers to broil in the sub-tropical heat.

Public anger has prompted the government to declare what an official calls an “all-out attack” on crypto cowboys. On July 10th the Senate approved a law to sentence energy thieves to up to ten years in jail. Since 2019 ande has shut down 71 illegal bitcoin farms, but until now few of their owners have faced serious punishment.

The government is friendlier towards miners who play by the rules and to other energy-intensive industries. While a quarter of Paraguayans still cook with firewood, Santiago Peña, the president, talks of his country becoming a “centre of digital integration” for Latin America and the world. He would like it to host the power-guzzling data centres used by artificial-intelligence software and an internet cable linking the Atlantic and Pacific. There are plans, too, for plants generating hydrogen and ammonia via electrolysis, and for a wood-pulp mill costing $3bn. The fintech lobby is working with legislators from Mr Peña’s party, the Colorados, to draft a bill to regulate the mining of cryptocurrencies, though it would not make them legal tender, as in El Salvador.

This is meant to win over wary foreign investors and banks. “It’s going to be halal and kosher,” promises Mr Arriola. Under the 1973 Itaipú treaty, Paraguay has to sell its leftover electricity to Brazil cheaply. Better, officials argue, to use it to mine crypto at home, generating jobs and cash.

Not everybody agrees. Under a previous administration in 2021, the ministry of industry and business reported that crypto mining generated few benefits. The central bank warned that it could be used to launder drug money and finance terrorism. Hizbullah, a Lebanese militant group backed by Iran, is thought to have raised funds among the Lebanese diaspora in Ciudad del Este, Paraguay’s second city.

Crypto mining “deepens the extractivist model” of Paraguay’s economy, from which only a select few benefit, argues Lis García, co-author of a report by tedic, a local think-tank. And like the country’s big soyabean and cattle industries, hydroelectric output is vulnerable to climate change. The country has recently been scorched by drought and heatwaves. As these worsen, Itaipú will produce less energy. The cooling systems required by crypto farms will demand more. Official projections suggest Paraguay’s electricity surplus will be used up by as early as 2030. “The outlook is alarming,” warns Ms García.

Paraguay’s pervasive corruption means that many rogue crypto barons may escape the threatened crackdown. ande has admitted that it is investigating claims that seven of its engineers illegally installed crypto farms, complete with their own power transformers. Senators want to quiz ande’s president about electricity thefts and a recent rise in the tariff for legal users.

In May police and prosecutors made the country’s biggest bitcoin bust to date, near the border with Brazil. They found more than 2,700 computers on shelves, strewn across the ground or on a getaway truck. The criminal crypto compound had been operating less than three kilometres from ande’s local substation.