On Christmas Eve, some unfortunate news broke for Russian bitcoin miners, which might have them trade in bitcoin for coal mining: the Russia government is imposing a six year ban on bitcoin mining in 10 regions.
Depending on who you ask, Russia is second only to the United States in the size of its mining industry. The Luxor team, for example, estimates that roughly 16% of Bitcoin’s hashrate resides in the country, so an all-out bitcoin mining ban in the land of borscht, vodka, and Dostoevsky would be a significant event that would reshuffle the distribution of hashrate across the globe.
Only, the current “ban” – if you can really call it that – is not absolute.
As Denis Rusinovich explains on the latest Mining Pod, the new laws work more like restrictions. Certain miners, like unregistered retail miners who mine using residential rates, will be banned in a number of regions that have faced challenges with electricity deficits. Others will now face blackout periods during the winter months in Irkutsk and other regions. But registered, industrial-scale bitcoin mining operations in Russia won’t be getting the axe; they may have to migrate to less populous, energy-dense areas, but they won’t need to leave the country.
Rusinovich breaks down all of the nuance in our podcast, and for today’s newsletter, we’ve transcribed some of the highlights (and edited for clarity where appropriate)
What exactly is this ban? Because it seems like a region by region ban, but not a blanket ban on bitcoin mining in Russia.
Well, basically you need to look at the actual sequence of events, and something that took place prior to this ban was a focus on regional legislation changes, which sort of legalized bitcoin mining in the country. And so the subsequent step was illuminating which regions were not supposed to have mining.
There are actually two categories of restrictions under the new laws. One category is a complete ban, and this is mostly focused on the Caucasus region. Specifically, you have Dagestan and Chechnya. Chechnya is a region where there is mountainous terrain and limited transmission line capabilities. So the illegal mining which came here actually jeopardized the system. And this is where the government eventually did a full crackdown on illegal mining, and this is why some of these regions will see a more or less a permanent ban going forward.
And then there is a second category. The Irkutsk region, for example, which, let’s say, is like Russia’s Texas, where basically it saw massive bitcoin mining activity over the last 5 to 7 years. This region, actually, was put under a restriction which is only active on a quarterly basis [during the winter months].
So basically, they’re saying that there is going to be a ban from 1st of January to I think it is in mid-March in 2025, then afterward there will also be a ban in November and December.
Can you touch on the registration regulations that were put forth in November?
From the 1st of November, the Russian government rolled out a system. Basically all the miners operating in Russia have to register. And by 1st of January 2025, miners were supposed to be in one list or another. And this is the sort of regulation that already kicked in in parallel to the ban – it was synchronized.
So the registration rules basically set the stage for this, trying to get miners to register with the government, to play ball and be compliant. Is that a good way to think about it?
I think you should look at it more on a systemic level. There is going to be a clear register of all the legal bitcoin mining entities in Russia, which operate in one category or another. And this is done for a few purposes (for e.g., so that they can cross check that all the hardware is imported legally, you know, and so that miners register as large consumers).
They do understand exactly which regions which miners operate in. I mean, some of these mining sites are consuming power on the scale of aluminum plants, which is quite important, especially if energy security is so vital for many regions nowadays.
Before all of these regulations and laws were put into place and now this ban, how many miners would you say were operating legally versus illegally?
You know, I’ll probably need to group them into different categories so that it makes it pretty clear for you. You have a group of more institutional-type players. They obviously took a much more active position, you know, in the policy dialog. Large players in a country which took steps to be more visible. We have like 5 to 10 large miners, you know, with roughly a total of 5,000 megawatts
[For the second category,] you have midsize miners, you know, which is basically opportunity based. They have 10, 20 megawatts.
And then [for the third category], you have retail miners, who are actually going under a massive ban.
They’re placing two, three units, you know, randomly across their flats, and this is quite a disruptive event for the government on the residential energy infrastructure.
So the residential miners and the retail ones are kind of at the center of this conflict because that’s load that the government can’t really measure very well.
It’s not only in Russia; if you look at, for example, Indonesia, Malaysia – there are a lot of regions where you have subsidized tariffs for residential areas. And in Russia, it’s four or five times lower than a normal tariff because it’s subsidized by the government.
And in a way, officials actually classified [using this electricity] more as a sort of a theft, because the energy is not supposed to be for business purposes. And this is why they are trying to change it. But say you’re operating on a large scale and you register as a business and pay the taxes – it’s okay.
So, there’s going to be some hashrate coming offline in Russia, but this probably won’t have a huge effect, right?
I don’t think there’s going to be an effect like we saw in China, you know, when the shutdown took place. I think we’re going to see some effect because Irkutsk does have a lot of hashrate; industrial miners might be affected because of this seasonal ban, but overall, I think retail definitely will be sort of swept away. You know, we might have [some drawdown], but it’s not going to be so drastic.
