Cryptomining Booms in Russia Despite US Sanctions

(Image credit: Tom's Hardware)

Bitcoin mining is thriving in Russia, despite the international sanctions imposed on the country following its 2022 invasion of Ukraine. This upswing is due to an influx of mining machines from manufacturers like Bitmain and MicroBT, whose expansion is driven by a saturated U.S. market, reports CoinDesk.

Russia has held a dominant position in the global Bitcoin hash rate because of its cheap energy and cold climate, which makes it somewhat easier to cool down mining data centers. In addition, China's 2021 ban on crypto mining boosted Russia's hashrate even further, making it one of the world's largest mining industries. Now that the U.S. market is saturated with mining machines from Bitmain and MicroBT, more machines are shipping into Russia than to any other market, according to Ethan Vera, COO of Luxor Technologies.

Russia's booming mining industry stands out against its struggling economy, which has suffered under severe sanctions imposed by the West. These sanctions do not entirely prohibit involvement in the mining sector, although they present 'significant risks,' according to David Carlisle, vice president of policy and regulation at blockchain analytics firm Elliptic. Foreign mining companies cannot conduct business with sanctioned entities or make payments to state banks and companies, which makes it harder to set up data centers in the country. In addition, these companies also face potential reputational risks given the current geopolitical climate.

The rising price of Bitcoin, coupled with increased activity on the Bitcoin blockchain driven by projects like Ordinals, have created a favorable environment for mining. Some factors make Russia particularly more competitive when it comes to mining. Firstly, increased regulatory scrutiny and taxation in the U.S. and other countries made them less appealing for mining. Secondly, changes in Kazakhstan’s regulatory environment, limiting the amount of electricity available for Bitcoin mining, made some miners move away from Kazakhstan, possibly to Russia. Thirdly, energy costs in Russia are significantly lower than elsewhere. Current prices for installing machines at a colocation datacenter are between $0.05-$0.055 per kWh in Russia, significantly lower than U.S. prices around $0.08 per kWh.

Cryptocurrency Mining Group (CMG) suggests Russia will be the only country able to significantly accelerate hash rate growth due to these conditions.

Mining rig manufacturers like Bitmain and MicroBT are capitalizing on the opportunity presented by Russia's thriving sector. Both companies are purportedly expanding their presence in the Russian market, providing after-sales services such as maintenance and repairs to local miners, albeit without officially confirming it.

Despite geopolitical tensions and sanctions, Russian miners and their international clients remain undeterred. These sanctions may have even inadvertently boosted the Russian mining industry, offering an alternative revenue stream for power producers hit by the economic downturn and facilitating the conversion of Russian rubles to Bitcoin, which can be traded globally. Despite potential hesitation from European and U.S. miners, Chinese miners are keen to fill any voids, taking advantage of the thriving Russian market and China's close relations with Russia.

But the skies are not completely blue for the Russian mining sector as companies working in Russia or with Russian entities may be sanctioned by the U.S. government. 

Following the invasion of Ukraine, the U.S. government imposed sanctions on BitRiver, Russia's largest hosting provider and a key player in the mining industry, which was the first instance of a mining entity being targeted by U.S. sanctions. The aftermath of this decision has left companies, such as the retail-oriented Compass Mining, uncertain about how to manage their equipment. Obviously, doing business with a sanctioned entity like BitRiver presents considerable risks for companies.

Anton Shilov
Contributing Writer

Anton Shilov is a contributing writer at Tom’s Hardware. Over the past couple of decades, he has covered everything from CPUs and GPUs to supercomputers and from modern process technologies and latest fab tools to high-tech industry trends.

  • InvalidError
    Russian oligarchs and Putin need ways to pull their money out of Russia and crypto is one of the easiest ways for them to dodge sanctions.
  • atomicWAR
    Crypto being used for something dodgy. Who'd believe it? Oh yeah almost everyone...
  • edzieba
    There's still no magic bullet: to turn those minted coins into anything else (i.e. use it as a fungible currency rather than as a value store) you need to persuade someone to take them in exchange for something. For financial transactions via an exchange, that means going via KYC (Know Your Client) and being rejected (if an exchange is willing to ignore sanctions and risk international ire then BTC can be skipped and a RUB<>USD exchange conducted directly). For hardware sales, that means finding someone both willing to buck sanctions and ship to Russia, whilst also accepting BTC (i.e. not China).
    That leaves use by non-sanctioned foreign resident oligarchs for wealth flight - methods to take assets within Russia (i.e. energy) and move them outside of Russia, with no return. This is a process harmful for Russia, even if non-Russia-resident Oligarchs accessing (some of) their wealth they are cut off from is galling. There is the possibility of trying to end-run around sanctions by using BTC to transfer funds to 'trusted' non-sanctioned oligarchs and those oligarchs then using the 'clean' money to purchase goods for shipment to Russia, but that means a) those oligarchs would need to resist the urge to just take the money and thumb their noses at Russia (being Persona Non Grata already) and b) they would still be subject to KYC when purchasing hardware for shipment to Russia (or performing financial transactions with beneficiaries in Russia) so run the risk of being hit personally by turning rom non-sanctioned entities to sanctioned entities.

    tl;dr and other cryptocurrencies are Super Happy Fun Libertarian Space Dollars as long as you transact only other for other Super Happy Fun Libertarian Space Dollars. Once you need to interact with traditional financial systems via fiat currency exchange or acquiring actual hardware, they offer about as much identity protection as a stick-on moustache.
  • daworstplaya
    The crypto cockroaches are back again!
  • InvalidError
    daworstplaya said:
    The crypto cockroaches are back again!
    It is only bitcoin though, you'd go bankrupt trying to use GPUs for that. Nothing to worry about at least for now.