Bitcoin Mining In Russia vs America
A Funny Thing Happened On The Way To The Crypto Mining Market
Bitcoin and crypto mining farm. Image: Envato Elements
War and sanctions are positive for Bitcoin mining machines in Russia.
This spring, reports hinted that Russia became the 2nd largest crypto mining country in the world. Actually Russia’s mining capacity reached 1 gigawatt in comparaison with the U.S. capacity of 3-4 gigawatts.
Cryptocurrency mining is a way of generating new digital assets like Bitcoin. Like other altcoins , Bitcoin is non-governmental electronic money that can be stored on a digital or physical wallet allowing any individual to be one's own bank. A heresy for states that depend on taxes and customs, but a blessing for ordinary people.
Since the Chinese government banned mining in 2021 (at that time China accounted for at least 65% of the total hash rate of the bitcoin network), the country rig mining capacities shifted to more free and profitable destinations.
Kazakhstan, another huge actor in Bitcoin mining, also capped the electricity supply to mine BTC. On top of that, the U.S. began to turn as a less permissive place fot cryptocurrency although America still claims a strong pole position. And elsewhere, other countries also initiated restrictive legislations against mining.
US federal and state regulations have imposed environmental limitations and taxes on mining facilities. Rising electricity prices and the removal of tax incentives are slowing the growth of the BTC hash rate. Under the pretext that bitcoin has a negative impact on the environment, President Biden's 2023 budget proposed a 30% excise tax on the cost of powering crypto-currency mining facilities and required reporting the amount of electricity used as well as the energy source. Tax bills on mining revenue are also planned for Texas, a state that was expected to remain a haven for business in the Land of the Free.
Stopping crypto mining and possibly curbing the sector is the objective of the Biden adminsitration in order to lower the energy consumption and protect nature. It is true that high inflation and rising energy costs are also an issue in America as well as in Europe. Yet the cryptocurrency market is still a dwarf in term of energy demand and its proclaimed anti environmental stigma is preposterous. Although not the topic here, Joe Biden did way more to destroy the world economy and raising inflation by injecting weapons and billions of dollars in Ukraine. What can we expect, it's the pot calling the kettle black. Nihil novi sub sole.
On the other hand, Russia took a stark opposite approach to western mining stance. Unlike liberal democracies who turned out to be economically repressive about cryptocurrency, the bear country welcomed the mining companies so much as to allow hardware providers such as Bitmain and MicroBT to deploy mining facilities and profit from this new market. MicroBT and Bitmain are headquartered in China so good relations between Russia and China may turn as an advantage for the crypto market.
In fact, Russia has a lot of benefits for the crypto industry and private individuals. The country provides inexpensive electricity ($0.05-$0.055 per kilowatt hour (kWh) compared with around $0.08 per kWh in the U.S.) , a cold climat, no similar law restrictions, cheap Siberian hydropower, a vast territory, lots of abandoned factories, lots of power grid spare capacity, good uptime,... Old clients did not leave the country with sanctions. Actually, they even expand their activities and new customers flocked in. Some people claimed that there is nowhere else to go for mining. Through different channels, mining rig companies sell their products in Russia.
To avoid being sanctionned by U.S. authorities, mining companies keep a low profile and contacting them is done mainly through word of mouth. Anonymity has always been at the core of cryptocurrency after all. It also now appears that Americans and Europeans war unphased facilities continue operating in Russia one way or another.
Even if relationships between the Russian mining sector and external companies was deeply affected by the war, non Western institutions continued to do business with Russia. Banks in Dubai, the United Arab Emirates, and elsewhere can be used to transfer money. Many clients are from Europe, America, China and indirectly "help Russia monetize its natural resources" to allow the Putin regime "to offset the impact of sanctions". This alternative banking circuit is scrutinized by company laws departement to stay legal and therefore protect the firms from significant reputational risks. Before the next halving in 2024 (mining reward being cut in half), mining firms continue to work and maximize profits thanks to the new rise in the Bitcoin price (around $29300 now).
All in all, The Russian Federation is the mining competitive place of the day and even may attain the top of the podium if the computational surge goes on. From anti-crypto nation, the country has changed its tune and adopted a more-friendly stance on cryptocurrency mining. In september 2022, Russia announced its intention to legalize the use of cryptocurrencies in the settlement of cross-border transactions. As part of a larger and brand new international paiement system, cryptocurrency can help Russia circumvent sanctions to trade with his allies and partners.
It is clear that realpolitics and pragmatism are the motto in the Kremlin to reach its long term goal. Bitcoin is part of that economical drive and it is an advantage for all maximalists and crypto worshippers.
The world is a living contradiction. How ironic that the bear country has to tackle alone the bear market. It is hard to say if U.S. candidates will take a different position and propose bills to positively regulate crypto mining.
Whatever happens, we will be there to navigate across the Western political chaos.