- Bitcoin mining has always been affordable in Russia
- Russia has favorable conditions for mining
- The role of mining equipment manufacturers
- The consequences of sanctions are unclear
The mining industry in Russia is thriving. Manufacturers that produce mining equipment, like Bitmain and MicroBT, are happy to enjoy the advantages of this situation. More mining machines are sold to Russian buyers than anywhere else in the world, according to Ethan Vera, COO at the crypto-mining services firm Luxor Technologies.
Bitcoin mining has always been affordable in Russia
Historically, Russia has been one of the leaders in terms of Bitcoin hash rate which is the amount of processing and computing power being given to the network through mining. This is achieved thanks to affordable energy and a cold climate. The country’s share of world mining increased after China tightened its crypto crackdown and banned mining in 2021. At the same time, mining has not been affected by the sanctions against Russia.
According to David Carlisle, VP of policy and regulation at Elliptic, a blockchain analytics firm, none of the “sanctions targeting Russia completely prohibit involvement in the mining sector.” However, companies working in Russia’s mining industry can face significant risks. According to Carlisle, they cannot conduct business with sanctioned entities including mining hosting firm BitRiver or make payments to government-owned banks and companies. Moreover, given the international situation, foreign firms opening operations in Russia are likely to face reputational risks.
Russia has favorable conditions for mining
In the past months, mining economics has grown as a result of the increase in the price of Bitcoin and the launch of Ordinals — a project enabling Bitcoin-native on-chain NFTs. Moreover, a regulatory crackdown and increased taxation in the United States and other countries have contributed to Russia’s success. According to a report by Cryptocurrency Mining Group, Russia will be the only country able to significantly accelerate the growth of the hash rate.
Another factor is that Kazakhstan has limited how much energy crypto miners can use which has also contributed to Russia’s increase in computing power.
Cheap energy, one of the most important factors of mining profitability, has motivated Russian miners to scale their operations. As the energy is so inexpensive, miners can use their machines at other firms’ facilities at a cost of 0.05-0.055 US dollars per kilowatt hour (kWh) as compared to around 0.08 US dollars per kWh in the United States.
The role of mining equipment manufacturers
As a result of these favorable conditions, mining equipment manufacturers have sought to take advantage of the great opportunities. MicroBT has already secured a foothold in the market, and Bitmain, the world’s largest manufacturer, is still selling its rigs in Russia, only using other trademarks. The address of its Moscow office is available on the official website. Both firms offer after-sales maintenance and repair services to local miners which proves that the companies still operate in Russia.
The consequences of sanctions are unclear
The tense geopolitical situation has not prevented either Russian miners or their foreign clients from cooperating. Although, from the point of view of Western governments, doing business with a sanctioned entity would constitute a significant risk to any firm.
CMG believes that in spite of pressure on the Russian economy and financial sphere, sanctions may have contributed to the growth of the Russian mining industry in the two following ways:
• mining offers an alternative source of income for electric power producers who have suffered from the economic slowdown;
• mining makes it easier to convert rubles to bitcoin which can be exchanged in other countries, unlike rubles.
Even if Western manufacturers leave the Russian market due to sanctions, China will be happy to take their place. As a result, Russia is perfectly positioned to become the world’s leader in mining.
