Government Blockchain Offensive: Three Countries Chart New Paths

From Prohibition to Active Use: Government Blockchain Initiatives Set New Standards

While governments spent years oscillating between skepticism and regulation, a remarkable paradigm shift is currently underway: states and state institutions are evolving from passive observers to active architects of the blockchain economy. Three recent developments from Paraguay, Switzerland, and Japan demonstrate how different—yet strategically considered—this transformation can look. The common thread: all three approaches aim to build digital infrastructure under state control while harnessing the advantages of decentralized technologies.

The Facts

In Paraguay, the state electricity monopoly ANDE has signed a memorandum of understanding with technology company Morphware to establish a state-run Bitcoin mining program ^[1]. At the center is an unusual resource: approximately 30,000 confiscated Bitcoin miners that authorities seized from illegal operators. These had either stolen electricity or falsely registered as other business types to obtain cheaper electricity rates ^[1]. "They are literally stacked to the ceiling," describes Morphware CEO Kenso Trabing of the government warehouses full of unused equipment ^[1].

The pilot program will initially put 1,500 of these miners into operation at ANDE-controlled sites. Paraguay offers abundant cheap electricity thanks to its hydroelectric plants, particularly the Itaipu Dam—but exports this electricity abroad at low prices ^[1]. Trabing argues: "When you do the math, it's quite simple: you're selling electricity for a fraction of what it can generate when you use it locally" ^[1]. Morphware's role is limited to consulting and technical support, while ANDE retains ownership and oversight. Existing utility buildings next to substations are to be converted into mining facilities through installation of ventilation, transformers, and metering equipment ^[1].

An open question remains the use of the mined Bitcoin. Within the government, there is discussion about whether the coins should be sold immediately to finance social programs, or whether a portion should be held. Morphware recommends a conservative approach with hedging through derivatives, such as selling BTC futures on US exchanges ^[1]. The company advises against direct state custody—Paraguay has experienced serious cybersecurity incidents in recent years, including ransomware attacks on several ministries ^[1].

In Switzerland, the city of Lugano and stablecoin issuer Tether are taking a different path. With the announcement of "Plan ₿ Phase II" (2026-2030), the initiative launched in 2022 to integrate digital assets into public and economic infrastructure is being expanded ^[2]. Over 400 local merchants already accept Bitcoin, Tether's USDT, and the city's LVGA token. Municipal services have experimented with digital bond issuance and blockchain-based payments ^[2].

Phase II rests on five strategic pillars: institutional infrastructure for digital assets with SwissLedger as an open blockchain for banks, positioning as a hub for digital trade and commodities, privacy-preserving digital identity through zero-knowledge technologies, decentralized artificial intelligence and autonomous economic agents, and resilient urban digital infrastructure ^[2]. Tether is providing up to 5 million Swiss francs over five years, primarily in the form of expertise and infrastructure development, while governance and oversight remain entirely with the city ^[2]. "By 2030, a city's freedom will increasingly depend on its ability to manage its own data and essential services," explains Mayor Michele Foletti ^[2].

In Japan, the Bank of Japan (BOJ) is pursuing a more traditional central bank approach. Governor Kazuo Ueda announced plans to test payment settlements via blockchain, particularly for interbank and securities settlement ^[3]. The tests are part of a "sandbox" project through which the BOJ is exploring the use of central bank money for various settlement processes on a blockchain basis ^[3]. External experts are to "examine the possibilities of connecting to the existing system," according to Ueda ^[3]. As part of the international "Agorá Initiative," the central bank is also exploring the issuance of central bank money in tokenized form via blockchain as well as the deployment of smart contracts ^[3].

Analysis & Context

These three initiatives represent different stages of government blockchain adoption—and all have strategic significance for the further development of the Bitcoin and blockchain ecosystem. Paraguay's approach is particularly noteworthy because it transforms Bitcoin mining from a regulatory problem into a government revenue source. The country is not only monetizing confiscated hardware but also unlocking a new use for excess energy capacity that was previously exported at undervalued prices.

Historically, this is not the first case of state-controlled mining—Venezuela attempted a similar path in 2018 with the "Petro" and state mining operations, but failed due to lack of transparency, corruption, and technical incompetence. The crucial difference: Paraguay relies on external expertise, clear governance structures, and works with established Bitcoin protocols rather than proprietary solutions. However, the question of Bitcoin management reveals a fundamental tension: states think in budget cycles and require predictable revenues, while Bitcoin holding promises long-term value appreciation. The derivatives strategy recommended by Morphware could represent a compromise model here.

Lugano's Plan ₿ Phase II pursues a broader vision: the creation of digital city infrastructure that integrates decentralized technologies into the core of public services. This goes far beyond payment integration and touches on questions of digital sovereignty. While Bitcoin adoption at the merchant level is impressive, the real innovation lies in the planned infrastructure for digital identity, tokenized commodities, and autonomous agents. Should Lugano succeed, this could become a blueprint for other cities—especially in times of increasing cybersecurity threats and dependence on centralized technology providers.

Japan's initiative is characteristic of the country's cautious but methodical approach to financial innovation. The BOJ avoids public blockchains in favor of controlled experiments—an approach that is less disruptive in the short term but more manageable from a regulatory perspective. However, participation in the Agorá Initiative shows that Japan wants to help shape international standards rather than merely react. For Bitcoin investors, this is a double-edged sword: on one hand, blockchain adoption by central banks legitimizes the technology; on the other hand, tokenized central bank currencies could be positioned as competing infrastructure.

In the medium term, these developments are likely to shift narratives around Bitcoin and blockchain. State actors will no longer be perceived primarily as regulators, but as participants and infrastructure developers. This could accelerate regulatory clarity—but also lead to increased surveillance and control claims. For the mining industry, Paraguay's model could set a precedent: other countries with energy surpluses could develop similar programs, which would influence the geographic distribution of hashrate.

Conclusion

• Paraguay is transforming confiscated Bitcoin miners and excess energy capacity into a government revenue source—a model that other countries with cheap energy could copy and that would reshape the global mining landscape

• Lugano's Plan ₿ Phase II goes beyond simple Bitcoin adoption and develops comprehensive digital city infrastructure that could serve as a blueprint for urban digital sovereignty

• The Bank of Japan legitimizes blockchain technology through methodical integration into central bank operations, but remains with controlled, closed systems rather than public blockchains

• The common denominator of all three initiatives: states are moving from reactive regulation to proactive design of digital infrastructure—with potentially far-reaching consequences for decentralization and state control claims

• Investors should monitor whether these early projects succeed—their failure or success will determine the speed at which other states follow suit and how strongly state actors will shape the Bitcoin and blockchain sector in the future