Crypto Mining Drives Electricity Consumption in Siberia
Crypto Mining in Russia and Regulatory Changes
Russia’s Siberia region demonstrated an unprecedented growth in electricity consumption in the recent weeks, following uncertainty in the government regulation of Bitcoin mining in the country. According to the Russian news agency TASS, the rapid increase in the scope of grey mining has resulted in the fourfold increase of electricity consumption in the region. Most entrepreneurs in this sector are involved in such activities due to the excess power supply in Siberia as well as the lack of other manufacturing opportunities in this area. The increasing role played by Irkutsk and other Siberian regions in Bitcoin mining is largely caused by the mining ban initiated by China’s authorities last year, thus causing miners and mining companies to relocate to Siberia. A considerable proportion of miners is involved in illegal activities by using electricity at residential prices of about $0.01, and it causes prosecution by Russia’s authorities. According to the existing tariffs, firms involved in industrial activities should pay three times higher prices as compared with private individuals. Thus, similar requests are made to all mining companies in Siberia with the continuous monitoring being performed by law enforcing agencies. At the same time, considerable uncertainty in the market still exists due to the lack of an official Russia’s government position on mining and its regulations in the country.
Regulatory and Policy Debates
The central bank (the Bank of Russia) and Russia’s government have adopted two opposite positions in regards to mining regulations in the country. In particular, the central bank representatives advocate for the complete prohibition of mining in Russia in a manner similar to that implemented in China. In contrast, the Ministry of Finance advocates for legalization and close regulation of Bitcoin mining. The major potential advantages of such a strategy for the Russian government include additional tax revenues and attraction of foreign investments in those regions of the country where some idle manufacturing and electricity capacities are present (as a result of post-Soviet transformation of the country). President Putin expressed his support of the idea to regulate Bitcoin mining as a more reasonable approach for Russia’s long-term strategy. He also encouraged members of the government and central bank to work closely on reaching consensus on mining regulation in the country. Most experts suggest that Putin’s position almost guarantees that future regulatory changes will be made in the direction of mining legalization under the close government supervision. Industrial scale miners may be allowed to operate in Russia (but only in specified regions in the north of the country) and under the conditions of being separated from the grid that provides electricity to the general population. However, most miners still expect a presentation of the official position adopted by Russian authorities.
What Will Happen after Ethereum Shifts to Proof-of-Stake?
One of the major questions relevant in the context of mining regulations refers to estimating the potential impact of Ethereum’s transition to Ethereum 2.0 and the proof-of-stake mechanism on crypto miners. As the proof-of-stake algorithm presupposes the validation functions being performed by holders who meet the set requirements (such as the minimum amount of ETH held), Ethereum mining will cease to exist. As a result, Bitcoin will remain the only major cryptocurrency that will rely on the proof-of-work mechanism and traditional mining. The potential implications of such changes for the mining industry in Russia and other parts of the world refer to the growing competition among miners and lower potential returns associated with crypto mining. Those miners who use the less efficient mining equipment and have higher costs may have to leave the industry as they may be unable to reach the desired level of profitability. Ultimately, the demand for mining hardware may decline, leading to the proportional decline in its prices.
Overall, the scope of the mining industry may experience negative dynamics in the following years because Bitcoin and other minor proof-of-stake platforms will be insufficient for maintaining mining returns at the previous level. The only possibility of the growing interest in mining in the following several years refers to the new bullish cycle with the price of Bitcoin reaching the level of $150,000 or even higher. In this case, miners can again generate high profits, and it will attract new entrepreneurs and firms. At the same time, halving and the growing mining difficulty can make mining profitable only for large mining corporations that will be able to utilize their industry scale potential. In any case, mining may continue being potentially attractive for developing countries as a source of extra revenues and investments.
