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Russian crypto mining challenged by strong ruble and sanctions

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Russian crypto mining challenged by strong ruble and sanctions

To mine bitcoin, it really helps to have a cold climate – to keep computers cool – and cheap energy to power them. Russia has both. So, last year, Denis Rusinovich, a bitcoin miner and co-founder of the cryptocurrency mining consulting service Maveric Group, seriously thought about starting a mining business in Russia. Rusinovich was born in Russia but is a British citizen.

“From a bitcoin mining perspective, Russia was definitely a top destination,” Rusinovich said. “But that was last year.”

This year, after Russia invaded Ukraine, things are completely different. Sanctions isolated Russia the global economy; it’s hard to start a business there now. But in addition to the geopolitical situation, a big decisive factor for Rusinovich is the strength of the ruble.

The Russian currency soared to a seven-year high against the dollar this summer despite punitive sanctions. This is partly due to of the Russian government tries to protect the ruble from sanctions, as well as from soaring oil prices. Doing business in Russia is more expensive now.

“The stronger rouble, I think definitely reduces the potential of any mining operation in Russia,” Rusinovich said.

Alexander Neumuller
Alexander Neumueller of the Cambridge Bitcoin Electricity Consumption Index. (Courtesy of Neumueller)

The price of bitcoin dived this summer. But when bitcoin tumbled last year, mining in Russia wasn’t badly affected, said Alexander Neumueller of the Cambridge Bitcoin Electricity Consumption Index.

“Russia – in terms of mining activity – is relatively stable. You don’t have these big swings,” Neumueller said.

CBECI hasn’t released data on how bitcoin’s recent crash has affected mining in Russia, but Neumueller said at the start of that crash, things looked different there.

“We have already seen that Russia is down slightly in terms of actual mining activity,” he said.

Now some Russian miners are trying to move their operations to neighboring countries. Sanzhar Amangeldy is a lawyer representing bitcoin miners in Kazakhstan. He said some Russian miners had approached his company to set up mining operations in Kazakhstan, but they appeared to be involved in criminal activity.

“We declined their offers,” Amangeldy said.

Some US lawmakers warned that crypto mining could help criminals – and the Russian government – ​​escape sanctions. But the risk is low, said Jonathan Levin of crypto research platform Chainalysis.

“The scale you would need to build this is somewhat massive in order to move the needle on sanctions busting.”

The latest CBECI data suggests that the electricity used by bitcoin miners around the world has declined since early June.

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