Last month, Chinese President Xi Jinping announced that China plans to become CO2 neutral by 2060 and calls for a “green revolution”.
Properly implemented, the plan could help China finally shed its biggest polluter status and significantly improve the global ecosystem, which could also drastically shake the country’s prominent Bitcoin (BTC) mining sector.
The most well-known mining hub in China is the southern province of Sichuan, which has an abundant hydropower sector. However, electricity is especially cheap only during the wet season, which takes place between May and September. Outside this period, most miners migrate up north to Xinjiang and Inner Mongolia, which currently generate over 40% of the total Bitcoin hash rate. Unlike Sichuan, however, these desert regions depend mainly on non-renewable energy sources such as coal. If the government continues to push for zero carbon dioxide emissions, mining there will be inefficient and local actors will have far fewer opportunities.
The future of Bitcoin mining is green
As the world has finally learned the hard truths about climate change and man-made emissions of carbon dioxide, constant access to renewable energy is becoming one of the key factors in Bitcoin mining. But are there places that can meet this requirement?
Let’s look at the Bitcoin Mining Map, which indicates a close estimate of the geographic distribution of the global BTC hashrate. China, of course, is the undisputed king, making up more than 65%. China is followed by the United States, Russia and Kazakhstan, which are 7.24%, 6.90% and 6.1
The Commonwealth of Independent States or the CIS region, which includes both Russia and Kazakhstan, seems to be overlooked especially by international actors, mainly due to lack of information on local mining scenes.
Adjacent to northern China, Kazakhstan’s electricity is mainly produced by coal-fired power plants. It is cheap, but not sustainable. The local government has also disrupted the electricity market by lowering tariffs and costs, which means they may bounce back.
Russia, on the other hand, has plenty of natural preconditions for cheap renewable electricity as well as a more stable economic environment.
Cold and energetic
If you ask me to name one thing that the Soviet Union was good at, I would say industrial infrastructure.
Most of the Bitcoin mining in Russia takes place in the famous Siberian region, which has also been a key point for aluminum production since the 1960s. As energy is consumed at all stages of aluminum production, the Soviet Union chose to build Siberian smelters together with hydropower plants (Russia hosts as much as 9% of the world’s water resources, mainly in Siberia and the Far East).
Aluminum smelting technology has evolved since then, making production much more energy efficient. This, together with the fact that the Soviet government often provided room for future growth in building infrastructure, is the main reason why the region has so much excess power these days. According to RusHydro, the world’s second largest hydropower producer, the total installed capacity of hydropower units in Russia is currently approx. 45 million kilowatts. More specifically, Siberian hydropower plants are estimated to produce almost 10% of the total production of all power plants controlled by the Unified National Energy Network.
Another important aspect is Siberia’s infamous climate, where it is cold nine months a year. If there is anything that this kind of weather is good for, it is hosting a data center filled with large, fully-running ASICs. Anyone who has ever tried to run a mining rig at home in the summer will probably know what I mean.
China is an ally
Russia’s proximity to China is also a big plus, as the best mining hardware is produced there.
Historically, Moscow has had a strong economic relationship with Beijing, which continues to strengthen to this day. Shipping between the two countries is cheap, fast and constant: freight trains and cargo planes continue to run despite the COVID-19 pandemic.
Now imagine sending thousands of mining rigs to the state of Texas from Beijing, given that the United States is in a trade war with China and has struck a hefty 25% tariff on imported mining.
Related: China and the United States must learn from each other and cooperate on the CBDC
Continued comparison with the US, the cost of operating and capital costs of maintaining a data center is significantly lower in Russia, mainly because local labor and construction costs are cheaper.
Moreover, if your rig breaks, you do not even have to send it back to China and waste several weeks (which is considered ages in Bitcoin mining). Institutional Russian facilities tend to have internal repair centers with technicians trained directly by the top Chinese mining hardware manufacturers so that they can quickly get everything going again.
Russia has been the third largest Bitcoin mining country for some time now, and the local industry has developed markedly.
Regulation is clearer than you might think
When you hear all this for the first time, you can argue for: But the Russian government has banned crypto. That’s actually not correct. Let’s take a closer look at the country’s largest cryptocurrency-related law called “On Digital Financial Assets” or DFA, which was signed into law in July.
The bill prohibits Russian residents from making payments in cryptocurrencies from January 2021, but legally recognizes them as “digital financial assets.” It does not mention cryptocurrency operations in any form, which means that there are currently no legal restrictions.
In early September, however, Russia’s Ministry of Finance allegedly proposed amending the DFA law to prohibit miners from receiving crypto payments for their activities. As the authority allegedly said:
“Standalone crypto mining is legal, but it loses its economic value because the payment is usually processed in Bitcoins and Ethers.”
While no one knows if the changes will be approved, it is quite straightforward what they suggest: the Russians cannot sell the coins they mine, but they can legally host their hardware and other infrastructure for foreign players. Most likely, the change will affect mom-and-pop operations, as large miners are usually paid in fiat currency. Moreover, operations whose customers are overseas can still be legally paid in crypto from abroad even if the proposed bill enters into force.
In addition, the regional authorities in Siberia receive a lot of support from large mining operators because they pay taxes, create jobs and use the surplus energy. The truth is that the government is businesslike and has no interest in destroying anything that contributes to the economy.
By this time, the government has already met with all the local major mining operators, mainly because the consumption of several megawatts of electricity can be easily detected by the electricity grid operator (and of course requires some sort of explanation). Earlier in August, the Ministry of Digital Development, Communications and Mass Media published a draft bill to establish further control over data centers in Russia.
A skeptic would continue: But definitely you will be cheated if you choose to extract in Russia. While business is never a risk-free activity, especially when it comes to the cryptocurrency industry, there are actually no reported cases of cryptocurrency-related scams in Russia. Police regularly shut down illegal operations that steal electricity, but authorities never go through compatible operations that pay taxes and costs.
Oddly enough, most stories of inconsistent miners come from North America, which is generally considered a highly regulated market. In fact, the region is filled with bodies of mining companies that either suddenly collapsed or turned out to be fraudulent and disappeared with investors’ money in both cases.
The latest example would be the Toronto-based HyperBlock, which suddenly closed its 20-megawatt data center in May, saying it had to shut down due to the Bitcoin halving – despite being a regular event that companies can prepare you on in good time. Similarly, US-based major crypto-mining and blockchain firm Giga Watt shut down access and power to its facilities in early 2019 after allegedly failing to pay $ 300,000 in bills.
Is another mining boom imminent?
Sure, Russia could use a clearer regulation of mining (like most countries in the world), but this process is likely to take some time. Most importantly, the government has finally announced its general position, which could be summarized as follows: “We are skeptical about the use of cryptocurrencies as a payment method, but are happy with the related activities that stimulate our economy.”
Therefore, it looks like the Russians are getting ready for a mining boom similar to what happened in 2017. Local retailers have recently reported a 49% increase in cryptocurrency-related graphics card sales in August, and GPU sales were recorded from June to August has increased by 470% compared to last year, so things are clearly warming up.
The views, thoughts and opinions expressed herein are those of the author alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
Igor Runets is the founder and CEO of BitRiver, the largest provider of colocation services for Bitcoin mining in Russia and the CIS region. After completing his MBA from Stanford, Igor returned to Russia to leverage his more than 10 years of experience in enterprise-class data centers and the surplus hydropower in Siberia to bring institutional Bitcoin mining to investors around the world.