Last month, Chinese President Xi Jinping said China plans to become carbon neutral by 2060, calling for a “green revolution”.
If the plan is properly implemented, it could help China finally shed its status as the biggest polluter and dramatically improve the global ecosystem, which could also significantly disrupt the prominent Bitcoin (BTC) mining industry in China. country.
China’s best-known mining center is the southern province of Sichuan, which has an abundant hydroelectric sector. However, electricity is particularly cheap there only during the rainy season, which takes place between May and September. Outside of this period, most miners migrate north to Xinjiang and Inner Mongolia, which currently generate over 40% of Bitcoin’s total hash rate. Unlike Sichuan, however, these desert regions depend primarily on non-renewable energy sources such as coal. If the government continues to push for net zero carbon dioxide emissions, mining will become inefficient there and local players will be left with far fewer options.
The future of Bitcoin mining is green
As the world has finally learned the hard truths of climate change and man-made carbon dioxide emissions, having constant access to renewable energy is going to become one of the most important factors in Bitcoin mining. . But are there places that can meet this requirement?
Let’s take a look at the Bitcoin mining map which shows an accurate estimate of the geographic distribution of the global BTC hash rate. China, of course, is the undisputed king, accounting for over 65%. After China are the United States, Russia and Kazakhstan, which are neck and neck at 7.24%, 6.90% and 6.17%, respectively.
The Commonwealth of Independent States, in the CIS region, which includes both Russia and Kazakhstan, appears to be particularly overlooked by international actors, mainly due to a lack of information on local mining scenes.
Like northern China, Kazakhstan’s electricity is mainly produced by coal-fired power plants. It’s cheap, but not durable. In addition, the local government has interfered with the electricity market by lowering tariffs and costs, meaning they could eventually rebound.
Russia, on the other hand, has many natural preconditions for cheap renewable electricity, as well as a more stable economic environment.
Cold and high in energy
If you ask me to name one thing the Soviet Union was good at, I would say industrial infrastructure.
The bulk of Bitcoin mining in Russia takes place in the famous region of Siberia, which has also been a key location for aluminum production since the 1960s. Because energy is consumed at all stages of the process. aluminum production, the USSR has chosen to build Siberian foundries as well as hydroelectric power stations (Russia hosts up to 9% of the world’s hydroelectric resources, mainly in Siberia and the Far East).
Aluminum smelting technology has evolved since then, making production much more energy efficient. That, along with the fact that the Soviet government often left room for future growth when building infrastructure, is the main reason the region has so much excess energy these days. According to RusHydro, the world’s second-largest producer of hydropower, the total installed capacity of hydropower units in Russia is currently around 45 million kilowatts. Specifically, Siberian hydropower plants are estimated to produce almost 10% of the total output of all plants controlled by the Unified National Power Grid.
Another key aspect is Siberia’s infamous climate, where it gets cold nine months a year. If there’s anything that kind of a weather is good for, it’s hosting a data center filled with large ASIC units running at full capacity. Anyone who has ever tried running a mining rig in their home during the summer will probably understand what I mean.
China is an ally
Russia’s proximity to China is also a major asset, as the best mining equipment is produced there.
Historically, Moscow has had a strong economic relationship with Beijing, which continues to strengthen to this day. Maritime transport between the two countries is cheap, fast and constant: freight trains and cargo planes continue to circulate despite the COVID-19 pandemic.
Now imagine shipping 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 imposed a high 25% tariff on imported mining equipment.
Related: China and US must learn from each other and collaborate on CBDC
Continuing to compare with the United States, the operating and capital costs of maintaining a data center are considerably lower in Russia, mainly because the costs of labor and local construction are cheaper.
Plus, if your platform goes down, you don’t even have to ship it back to China, costing you several weeks (which is considered an age in Bitcoin mining). Russian institutional-scale facilities usually have in-house repair centers with technicians trained directly by major Chinese mining equipment manufacturers, so that everything can get back up and running quickly.
Russia has been the third largest Bitcoin mining country in the world for some time now, and the local industry has grown significantly.
The regulations are clearer than you think
Hearing all this for the first time, one might say: But the Russian government has banned crypto. Well, that is not factually correct. Let’s take a closer look at the country’s main crypto law, called ‘On Digital Financial Assets,’ or DFA, which was enacted 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 any form of cryptocurrency mining, which means that there are currently no legal restrictions.
In early September, however, Russia’s finance ministry reportedly proposed amending the DFA law to prohibit minors from receiving crypto payments for their activities. As the authority would have said:
“Standalone crypto mining is legal, but it loses its financial value because the payment is typically processed in Bitcoins and Ethers.”
While no one is sure whether the amendments will be approved, what they imply is quite straightforward: 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, since large-scale miners are normally paid in fiat currency. In addition, transactions with clients abroad can still legally be paid in crypto from abroad even if the proposed invoice goes into effect.
In addition, regional authorities in Siberia are increasingly supporting large miners because they pay taxes, create jobs and use this excess energy. The truth is, the government is business friendly and has no interest in destroying something that helps the economy.
At this point, the government has already met all the local large-scale mining operators, mainly because the consumption of several megawatts of energy is easily detectable by the operator of the power grid (and naturally requires some sort of explanation). Earlier in August, the Ministry of Digital Development, Communications and Mass Media released a bill that would establish additional control over data centers in Russia.
A skeptic would continue: But surely you will be scammed if you choose to mine in Russia. While doing business is never a risk-free activity, especially in the cryptocurrency industry, there are actually no cases of crypto mining scams in Russia. Police routinely shut down illegal electricity theft operations, but authorities never searched compliant operations that pay taxes and costs owed.
Oddly enough, most of the stories of inconsistent mining players come from North America, which is generally considered a highly regulated market. In fact, the region is littered with the carcasses of mining companies that suddenly went bankrupt or turned out to be scams, disappearing with investor money in either case.
The most recent example would be Toronto-based HyperBlock, which abruptly shut down its 20-megawatt data center in May, claiming it had to go out of business due to Bitcoin’s halving – despite the fact that this is a regular event that businesses can prepare for well in advance. Likewise, in early 2019, large U.S. crypto and blockchain mining company Giga Watt shut down access and power to its facilities after allegedly failing to pay $ 300,000 in utility bills.
Is another mining boom imminent?
Of course, Russia could use clearer mining regulations (like most countries around the world), but this process will likely take some time. The most important thing is that the government has finally communicated its general attitude, which could be summed up as follows: “We are skeptical about the use of cryptocurrencies as a means of payment, but we accept the related activities that stimulate our economy.”
Therefore, it appears the Russians are bracing for a mining boom similar to that of 2017. Local retailers recently reported a 49% spike in crypto-mine-related graphics card sales in August and recorded GPU sales. June to August is up 470% from last year, so things are clearly heating up.
The views, thoughts and opinions expressed herein are the sole ones of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.
Runes of Igor 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 at Stanford, Igor returned to Russia to use his over 10 years of experience in enterprise-class data centers and excess Siberian hydropower to bring Bitcoin mining. of institutional quality to investors around the world.