New migration of crypto miners
In 2021, China made several critical statements about cryptocurrencies. The announcement to crack down on climate-damaging prospecting and thus mining farms was implemented a few weeks later by declaring transactions related to cryptocurrencies illegal. This also applied to foreign online services that had allowed the Chinese to access digital currencies. China’s critical stance is based partly on the high energy consumption of mining, and is partly the result of the aversion of its population to the digital yuan, China’s own state-controlled digital currency.
As a result, miners migrated to the U.S., Russia, and other countries. The U.S. benefited the most from developments in China, becoming the most important location in the world for crypto miners. However, Russia also set its sights on bringing the world’s mining resources to the largest country in terms of area and made it to the podium of the most important mining locations with 3rd place. Second place goes to Kazakhstan, where nearly 20 percent of the world’s Bitcoin computing power is provided. Europe also wanted to benefit from the developments in China – the Republic of Kosovo also tried to attract miners to the country.
Hangover in emerging markets
In January, Russia’s central bank released a report arguing that crypto trading and mining should be banned for energy balance, financial stability and crime prevention reasons. The mood also darkened in Kazakhstan, where low electricity prices lured miners. By the end of 2021, the government had implemented regional power cuts due in part to failed coal-fired power plants. The power shortages also prompted the government to provide less electricity to miners. That, along with Internet outages due to the unrest in early 2022, moved some miners to turn their backs on Kazakhstan. And miners also ran out of Kososvo when the government imposed a ban on crypto mining in early January to reduce power consumption.
A 60-day crypto mining ban had been imposed at the end of December 2021. The country’s largest coal-fired power plant had to be shut down at the end of 2021 due to a technical problem. This forced the country to import expensive electricity – rising electricity prices also spoiled business for miners in Kosovo. Combined with regular raids and confiscations of equipment, numerous miners relocated their activities to neighboring countries or dumped their hardware on the market.
Solution: liberalization of the electricity market
The volume of miners migrating from China is rapidly outstripping the capacity of the emerging economies that are absorbing them. Energy shortages threaten a country’s power infrastructure as well as its financial stability. A vicious cycle? Peter Marggraf, CEO of Crypto Supply GmbH, sees Georgia’s push to liberalize its electricity market as a valid solution. In Georgia, high economic growth, lower electricity prices and increased mining activities had driven up energy demand in 2021. In an interview with BTC-ECHO, Marggraf explains, “On the one hand, energy producers now have to specify exactly how much electricity they can produce with their plants. On the other hand, however, large energy consumers are also obligated to comply with the stated consumption. With the concept, both generation and consumption can be better estimated and harmonized.” If this is successful in Georgia, it presents a solution by which mining can actually be a financial boon for emerging economies.