Russia mined silver – Newspaper Kommersant No. 60 (7505) dated 04/07/2023

Russia has risen to second place in the world in cryptocurrency mining. The United States remains the leader, however, the uncertainty in the regulation of cryptocurrencies there may trigger a new redistribution of the market. However, in Russia, in general, the legal framework for miners has not yet been developed, experts emphasize. In addition, sanctions risks are growing both in relation to Russian players and their counterparties abroad.

According to the results of January-March, the Russian Federation for the first time reached the second place in the world in terms of the amount of power involved in mining – 1 GW, they say in BitRiver. The United States remains the leader with 3-4 GW of mining capacity. The top 10 also includes the Gulf countries (700 MW), Canada (400 MW), Malaysia (300 MW), Argentina (135 MW), Iceland (120 MW), Paraguay (100–125 MW), Kazakhstan (100 MW ) and Ireland (90 MW).

In previous years, Russia held third place. In particular, according to the Cambridge Center for Alternative Finance, at the end of 2021, Russia was ahead of the United States and Kazakhstan in terms of bitcoin mining capacity.

Earlier, in 2020, according to the same center, 65% of the total bitcoin hash rate was in China, in the US and Russia, this figure was 7.2% and 6.9%, respectively.

According to BitRiver experts, the positive dynamics is associated with the limitation of mining activities in Kazakhstan last year, and earlier in China due to a shortage of electricity. In particular, at the end of 2022, the Parliament of Kazakhstan introduced licensing of this type of activity, and also provided for measures to protect the national energy system from unregulated mining.

The development of the American market, adds BitRiver CEO Igor Runets, is slowed down by rising electricity prices, reduced mining profitability and the abolition of tax incentives. “In addition, the vast majority of equipment was purchased by American miners on credit, so many over-leveraged companies are in the process of bankruptcy or have already gone bankrupt,” he explains.

However, since the United States remains the leader in terms of total hash rate, all the attention of market participants is drawn to the actions of American regulators, says Roman Nekrasov, co-founder of the ENCRY Foundation. In particular, they can provoke another redistribution of the mining market, as happened in 2021 due to China’s tough actions to restrict mining (see “Kommersant” dated June 23, 2021).

In the United States, the status of cryptocurrency has not yet been determined, and the issue of the negative impact of PoW mining (the most energy-consuming process used mainly in bitcoin mining) on ​​the environment has not been resolved. In addition, there is currently a warming on the part of the regulators of Asian countries towards the crypto industry, says Mr. Nekrasov.

The growth of mining capacities in Russia is quite expected, as there are a number of areas that are most profitable for mining cryptocurrencies in terms of electricity prices, says Alisa Tsukanova, Marketing Director of EMCD. In these regions (Irkutsk and Sverdlovsk regions, Krasnoyarsk Territory and others), in addition to the low cost of electricity, there is a “favorable climate for mining”, which allows you not to spend additional funds on cooling equipment, Ms. Tsukanova explained.

However, despite the growth of the mining industry in Russia, there are still factors that hinder its development, experts say. In particular, the draft law on the regulation of mining was submitted to the State Duma in November last year, but has not yet passed a single reading. Certainty in the regulation of mining and the corresponding work of regulatory authorities will have a great influence on the market – both positively and slow down the development of the industry and the influx of foreign investment, says Mikhail Brezhnev, co-founder of 51ASIC.

Balanced and verified legislation will allow mining industry participants to plan their operational and financial activities, develop and implement large projects, attract investments and develop related areas of the Russian economy, primarily the electric power industry and information technology, Mr. Runets believes.

At the same time, foreign policy risks are growing for Russian miners. Mr. Brezhnev refers to them the strengthening of sanctions both against Russian companies and secondary sanctions against banks, exchanges, pools and other foreign participants who work with Russian miners.

Ksenia Kulikova