Companies such as Bitmain and MicroBT are putting themselves in a position to capitalize on the significant growth that the bitcoin mining industry is experiencing in Russia.
When it comes to the Bitcoin hash rate, which is a measurement of the amount of computational power that is devoted to the blockchain, Russia has always been a dominant player. This is largely attributable to the fact that the country has easy access to low-cost energy as well as a cold climate, both of which are conditions that are beneficial for mining operations.
According to one of Russia’s most important mining companies, Russia is now either the second- or third-largest player in the world after its share of the global mining market increased after China’s ban on the industry in 2021. This puts Russia in the position of being the second- or third-largest player in the world.
A thriving industry in bitcoin mining stands out as a bright spot for Russia in the midst of the economic difficulties the country is experiencing as a result of international sanctions imposed after Russia’s invasion of Ukraine and ongoing hostilities.
David Carlisle, Vice President of Policy and Regulation at Elliptic, a company that specializes in blockchain analytics, claims that the sanctions imposed on Russia do not expressly prohibit involvement in the mining sector.
On the other hand, he cautions that there are significant dangers facing businesses that are active in the mining industry in Russia.
For instance, it is against the law for them to engage in commerce with sanctioned entities such as the mining hosting company BitRiver, and it is also against the law for them to make payments to state banks and businesses.
It is important to note that Carlisle has previous work experience in the United States Department of Treasury, specifically in the Office of Foreign Assets Control (OFAC), which is responsible for the formulation of financial and economic sanctions.
Given the current state of international politics, any international company that is contemplating establishing mining operations in Russia needs to be aware of the potential reputational risks that may be involved.
Recent years have brought favorable conditions to Russia’s bitcoin mining industry due to improvements in mining economics.
According to Sergey Arestov, the CEO of BitCluster, a mining company, the positive circumstances have been contributed to by the increasing price of bitcoin (BTC) this year, as well as the Ordinals project driving up activity on the Bitcoin blockchain. Both of these factors have contributed to the positive circumstances.
In addition, increased regulatory scrutiny and taxation in the United States and other countries have made Russia a more attractive and competitive destination for mining operations. Consequently, this has led to an increase in the number of mining operations in Russia.
Given all of these factors, a report by Cryptocurrency Mining Group (CMG) suggests that Russia may be the only country that is capable of significantly accelerating the growth of the hashrate.
Additionally, regulatory shifts in Kazakhstan, a neighboring country, which have limited the amount of electricity available for bitcoin mining may have also played a role in Russia’s surge in computing power.
Didar Bekbau, the founder of the Kazakhstan-based mining company xive.io, suggested that some miners have relocated their operations outside of Kazakhstan, and Russia may be one of the countries to which they have relocated.
A significant factor that is driving the expansion of mining operations in Russia is the availability of affordable energy. The low cost of energy, which has a significant impact on a mine’s overall profitability, is a major draw for mining companies.
In the present day, miners have the option of placing their mining machines in the facilities of other companies, with the cost of energy for doing so ranging from $0.05 to $0.055 per kilowatt hour (kWh).
The abundance of low-cost energy sources in the area makes it possible for this region to offer energy at prices that are more reasonable. On the other hand, the price of energy in the United States hovers around $0.08 per kWh on average.
The provision of a service to cryptocurrency miners by data centers is an arrangement that goes by the name of hosting. Customers have the option of storing their mining rigs at these facilities and mining the digital assets of their choice while they are here.
Miners can avoid the need to build the necessary infrastructure themselves by utilizing hosting services, which allows them to pay a fee in exchange for the convenience of having access to energy resources that are more cost-effective.
Rig makers’ role
The favorable economic climate in Russia has encouraged mining computer manufacturers to seize the opportunity that exists in the country.
Even though the specific operations of these manufacturers in Russia are still somewhat unclear, industry insiders, who preferred to remain anonymous due to the sensitive nature of the topic, confirm that they have a significant presence in Russia.
Both Bitmain and MicroBT were contacted for comment on the situation; however, neither company chose to provide a response to the request. MicroBT reportedly already has a strong foothold in the market, whereas Bitmain is reportedly looking for intermediaries to improve its service in the Russian market. This information comes from a source working in the region’s industry.
Some claim that Bitmain, the largest manufacturer of mining machines in the world, is continuing to sell its wares in the Russian market despite the fact that the company is doing so under different company names.
On its website, Bitmain identifies a location in Moscow as one of its offices, and the company was present at a meet-up in Russia on April 28. A confirmation of the event was made by an administrator account in the official Telegram group chat. However, the location of the meet-up itself has not yet been determined. However, Bitmain eventually removed the webpage that advertised the meet-up from the internet.
Another source within the mining industry mentioned that Bitmain was present at a Crypto Summit in Moscow during the same month. This event took place during the same month.
In addition, a reseller of mining machines disclosed to CoinDesk that both Bitmain and MicroBT provide after-sales services, including maintenance and repairs, to customers located in Russia who operate mining rigs. This lends credence to the notion that these businesses maintain a physical presence within the nation for the purpose of providing support to their clients.
Several miners asked the administrator of the official MicroBT Telegram group chat about after-sales service in Russia. The administrator responded to the miners’ inquiries by asking additional questions and eventually inviting them to message each other directly. On the other hand, identical messages could not be located in any of Bitmain’s group chats.
The fact that both of these mining rig manufacturers are still actively operating in Russia, despite the fact that they are not in violation of any sanctions related to Ukraine, may bring unwelcome attention from the authorities in the United States. This is due to the fact that both companies have significantly increased their presence in the United States over the past few years, which coincides with the expansion of the cryptocurrency industry in North America.
As was previously disclosed in an interview with CoinDesk, the company MicroBT established a factory in Bellefonte, Pennsylvania, and was also involved in a pilot project with a local company for heat reuse systems.
Results of sanctions that are not entirely clear
In spite of the ongoing geopolitical tensions and the severe sanctions imposed on Russian entities and individuals as a result of President Vladimir Putin’s actions in Ukraine, Russian miners and their international customers continue to do business as usual.
It is noteworthy that China, the home country of both MicroBT and Bitmain, has not followed the lead of the United States and the European Union in imposing sanctions.
In spite of this, the mining industry in Russia is currently facing a number of obstacles. Shortly after Russia’s invasion of Ukraine, for example, the United States government blacklisted BitRiver, the nation’s largest web hosting provider, making it the first mining organization to be subject to such action.
As a result of this, businesses such as Compass Mining, which primarily serves retail customers, are facing ambiguity regarding the future of their mining equipment. Any company that deals with a sanctioned organization, such as BitRiver, would be taking on significant risks if they did business with that organization.
According to a previous report by CoinDesk, European and American businesses did not experience a significant impact as a result of the sanctions and continued to conduct business in Russia.
According to the report from CMG, there may have been some positive effects that the sanctions had on the mining industry in Russia. This finding is quite interesting. For starters, mining has opened up new avenues of profit for power companies that were having trouble meeting their financial obligations because of the recent economic downturn.
In addition to this, it makes it possible to convert Russian rubles into bitcoin, which, in contrast to the country’s national currency, can be traded anywhere in the world.
Arestov of BitCluster made the observation that Chinese miners, who have close relations with Russia, are more than willing to fill that space and participate in the Russian mining industry even though European and American miners may be hesitant to engage in mining activities because of international sanctions.