As cited by Russia’s largest bitcoin mining provider, Bitriver, Russia is now the world’s second-largest cryptocurrency mining country. Russia’s generating capacity reached 1 gigawatt between January and March 2023, second to the United States, with a mining capacity of 3-4 gigawatts.
First time in history, Russia surpassed Kazakhstan in second place. According to Bitriver, Kazakhstan now ranks ninth after imposing restrictions on crypto mines in 2022. In Bitriver’s top 10, China was not represented because the government banned crypto mining in 2021.
— Bitcoin News 🌴 Rooftop Meetup May 19th (@BitcoinNewsCom) April 24, 2023
Cryptocurrency laws in Russia restrict Bitcoin use. Among them is President Vladimir Putin’s 2020 law on digital financial assets, which legalized cryptocurrencies but prohibited their use in commerce. Russia has long been associated with sanctions evasion through cryptocurrency. In February, the United States blacklisted bitcoin and ether addresses it believed were involved in international sales of Russian defense equipment.
The European Union banned cryptocurrency transactions with Russian citizens and residents. The sanctions were part of the eighth round introduced last year.
The State Supports Russian Crypto Mining
Authorities in the U.S. are taking steps to regulate crypto mining. In the wake of these recent developments, Russia may close the gap between it and the largest Bitcoin miner in the world.
A recent report stated that the Russian government would subsidize the construction of an eastern Siberian mining center with a 100-megawatt capacity. Currently under construction by BitRiver, the crypto farm will pay no property tax and benefit from low-income taxes. Additionally, it will receive a 50% subsidy on electricity.
Russia provides tax incentives for those who want to invest in crypto mining! With the government’s direct support, the new $12M crypto mining center will open in east Siberia, possessing 30,000 crypto mining machines.
— WenMint (@wenmint_nft) February 13, 2023
Regulations Have an Important Role to Play
Regulatory changes significantly impact the ranking of the top BTC miners. Kazakhstan is a good example. When it was the second-largest mining power in late 2021, the country occupied 18% of the global hash rate. By the end of 2021, the country was experiencing an energy crisis, which made the government look more closely at the miners.
The country took harsh measures against miners to respond to the energy crisis. Power supplies were cut off, regulatory frameworks were tightened, and tax rates were differentiated. Mining power declined due to these changes, and the country represented only 6.4% of global hashing power at the beginning of 2023.
According to experts, Russia’s rise in the charts is likely linked to Kazakhstan’s change in attitude towards mining. In the meantime, cold climates and cheap electricity in various regions are expected to boost mining activities in Russia.
It is unclear what the U.S. will do about Bitcoin mining. It is, therefore, difficult to determine whether the U.S. will hamper mining activities and leave Russia in the lead or if it will further strengthen itself to widen the gap.
Alisa Tsukanova, EMCD marketing director, believes there are several areas in Russia where mining cryptocurrencies is most profitable based on electricity prices. Besides the low electricity costs, these regions (Krasnoyarsk Territory, Irkutsk, and Sverdlovsk regions) also have a “favorable mining climate,” which does not require additional cooling equipment.
Experts say that although Russia’s mining industry has grown, factors still prevent its development. Particularly, the mining regulation draft was submitted to the State Duma in November but has not yet passed.
According to Mikhail Brezhnev, co-founder of 51ASIC, certain aspects of mining regulation and the work done by regulatory authorities will profoundly impact the market – both positively and negatively, slowing down the industry’s growth and foreign investment.
It will be easier for mining industry participants to plan operational and financial activities with balanced and verified legislation. Mr. Runets believes they will implement large projects, attract investments, and develop related areas of the Russian economy, primarily the electric power industry and information technology.
Moreover, foreign policy risks are increasing for Russian miners. According to Brezhnev, secondary sanctions should be imposed against banks, exchanges, pools, and other foreign services that work with Russian mining companies.
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