Where to move Russian miners in the event of a ban on cryptocurrency mining

RBC asked experts about where miners from Russia could go.

One of the countries that benefited from China’s mining ban was neighboring Kazakhstan. According to the University of Cambridge, in August 2021 this country took second place in the world in bitcoin mining. Back in 2020, the authorities of Kazakhstan adopted a law according to which digital assets are recognized as property and cannot act as a means of payment, and their release and circulation are allowed only on the territory of the Astana International Financial Center, which has a special legal regime, said Ramis Abyanov, legal expert and representative of the TON open community (created as a branch of the blockchain project of the same name by the founder of VKontakte and Telegram Pavel Durov). But cryptocurrency mining is allowed in Kazakhstan. In June 2021, the authorities passed a law that from January 1, 2022, the tax on digital mining is 1 tenge per 1 kWh (0.18 rubles at the current exchange rate).

However, since mid-autumn, the local operator of backbone electric networks KEGOC began to limit the supply of electricity to some legal miners, explaining this by a tense situation due to increased consumption. At the end of December, KEGOC sent out letters to 196 mining farms about completely disconnecting them from the grid until February. Since the end of January of this year, problems with electricity began in Kazakhstan, as well as Kyrgyzstan and Uzbekistan. Southern regions of Kazakhstan from 09:00 to 17:00 remained without electricity.

At the same time, electricity tariffs in Kazakhstan are considered relatively cheap. For 2021, the minimum marginal tariff for electricity established at the level of 1.10 tenge per 1 kWh (0.19 rubles), and the maximum is 15.46 tenge per 1 kWh (2.71 rubles).

At KEGOC declaredthat do not link the power outage to the activities of the miners. Arman Konushpayev, Vice President of the Association of Developers and Users of BlockchainKZ Blockchain Technology, believes that Kazakhstan can be called “an attractive country for the crypto community” due to the already developed legislation, ready-made infrastructure and relatively cheap electricity. Power outages in the southern part of the country and the old Soviet power grid affected mining companies, but “not much,” says Konushpaev. However, some companies have intentions to look for other countries to move the equipment, he said. When asked if there is enough free electricity in the country, Konushpaev said that “in Kazakhstan, there is already a shortage of it due to miners.”

The representative of the press service of the National Association for the Development of the Blockchain and the Data Center Industry of Kazakhstan also assessed the prospects for the development of the country as “high”, but pointed to the negative effect of the power outage and the reaction to this from foreign clients and investors: “We will continue to attract investors in Kazakhstan, but, I think, not in mining, but in the development of crypto-exchanges and services. The main positive factor will be a friendly legislative climate for the cryptocurrency industry.”

Ramis Abyanov recalls that among the countries neighboring Russia, in addition to Kazakhstan, there is legislation to regulate cryptocurrency in Uzbekistan, Belarus, Estonia and Lithuania. The basic concepts in this area are enshrined in Georgia, Ukraine, Kyrgyzstan and Latvia. Mining in these countries is not prohibited, but “as such, there is no regulation of this activity anywhere”, with the exception of Belarus and Kyrgyzstan.

In Belarus, since 2017, a decree “On the Development of the Digital Economy” has been in force, which allows you to buy, sell and exchange cryptocurrency, open crypto exchanges and launch blockchain projects. Smart contracts can be used throughout the country (a computer protocol that allows transactions and controls their execution using mathematical algorithms; such contracts are stored on the blockchain platform), individuals – residents of the country are exempt from tax on all cryptocurrency transactions until 2023 and may carry out activities without registration or permission. Legal entities have the right to create and place their own tokens, perform operations through exchanges and exchange operators, Abyanov clarifies.

According to Vasily Kulesh, director of communications for the direct purchase, sale and exchange of cryptocurrencies Whitebird.io, eight mining companies currently operate in the country, their activities are regulated by Decree No. 8 “On the Development of the Digital Economy”. In total, about 10 thousand households are engaged in mining in Belarus, RBC’s interlocutor estimates. He refers to comfortable conditions for mining in Belarus: a special tariff for electricity, an already created legal legal framework and a surplus of electricity.

In September last year, the authorities of Belarus equated miners to data centers and determined separate norms for them in terms of the cost of electricity, their consumption should be from 25 million kWh per year. According to a source in the Belarusian market, the minimum cost of electricity for miners with a consumption volume of 500 million kWh will be 0.126 Belarusian rubles (3.72 rubles), the maximum with a consumption of 25 million to 50 million kWh – 0.15 Belarusian rubles. ruble (4.43 rubles).

According to the information of the Belarusian company ASER, since November 2021, about ten investors from Russia, Kazakhstan, China, Ukraine and other countries have contacted them with a request to register a mining company. The country has already developed the so-called cryptotourism, when citizens of other countries move to Belarus, become its tax residents in order to legally sell cryptocurrency, receive fiat money and spend it.

However, Roman Zabuga, a partner at BWC UG, a German diversified company that also operates data centers for cryptocurrency mining, noted that the departure of a large number of IT specialists after the 2020 presidential election could scare off many potential investors. Although if good conditions are offered, “this direction can shoot,” he made a reservation.

In Kyrgyzstan, from August 1 last year, a special tax regime was introduced for those who mine cryptocurrency. Miners now have to pay a 15% tax on their electricity bill instead of income tax and value added tax.

According to Moscow Digital School expert Efim Kazantsev, in general, countries “with a Soviet background” are not the most successful for the development of the crypto community due to “high risks of the emergence of prohibitive and restrictive regulations even in those jurisdictions where there are no such regulations yet.” He considers the United States, Venezuela, El Salvador and other countries where the circulation of cryptocurrencies is not prohibited or limited to be the most favorable jurisdictions for cryptocurrency and its mining.

The CEO of ElectroFarm Global, an industrial mining company registered in Singapore, Viktor Kulyaev considers Venezuela a profitable country for cryptocurrency mining, as it has relatively cheap electricity and there is no legislation that would restrict miners.

Sergey Perekhod, an analyst at FG Finam, calls Canada the most attractive place for crypto-immigrants due to the fact that its financial regulator “is already loyal to ETFs (exchange-traded investment funds. — RBC) for cryptocurrency, and national banks work closely with the world’s financial centers – New York and London.” “The rest of the countries look less profitable: in the EU there is an energy crisis and high electricity prices, in Venezuela and Africa there is a shortage of electricity and unstable political regimes. Russian conditions are close to Canada, and our country could attract miners from all over the world if it creates a kind of “special economic zone” that will actually export electricity to all countries of the world,” the analyst suggests.

From a technical point of view, banning mining in Russia is “quite difficult, if almost impossible,” Roman Zabuga recalled. “However, if this somehow happens, then our company is considering the possibility of organizing additional sites in the United States, Canada and Africa due to the availability of cheap electricity and the lack of restrictions for mining,” he said.

According to the CEO of the Swiss financial company Newcent, Vladimir Smetanin, Russian miners, “who until recently rejoiced at the influx of Chinese, are beginning to look for exits in the United States themselves.” He explains this by the fact that the United States is now the leader in mining in the world with the lowest cost of electricity – there are contracts at a price of about $0.02 (1.51 rubles) per 1 kWh. Vasily Kulesh noted that now the number of miners in the United States is growing, which “inspires fear.” “Historically, most of the “brains” of the cryptocurrency industry are located in the USA, and with the increase in the share of the USA in mining to more than 50% of the world’s hash rate, this country can gain a very large degree of influence on the crypto industry. I believe that it is necessary to create conditions for the efficient and legal work of miners in our region, in regions other than the United States,” he said.