The below article is part of a larger series on Bitcoin mining around the world compiled by the team at Arcane Research.
Bitcoin miners have an outsized presence in Georgia, considering the country’s tiny geographical size and small population. What makes this former Soviet republic so attractive to bitcoin miners?
I lived in Georgia for six months and have first-hand knowledge of its bitcoin mining industry. Using that knowledge and a range of available data, this article will answer that question and more.
How Large Is Georgia’s Bitcoin Mining Industry?
According to the most recent edition of the Cambridge Bitcoin Electricity Consumption Index (CBECI) mining map, Georgian miners produce 0.18% of Bitcoin’s hash rate. But I believe the country’s actual bitcoin mining capacity to be far higher than this estimate. Why?
CBECI uses data from mining pools to estimate the geographic distribution of miners, but the sample only includes four pools that together account for 34% of Bitcoin’s total hash rate. CBECI openly admits that its samples may not be sufficiently representative, but it’s still the best estimate we have.
If Georgian miners are not heavy users of the pools included in CBECI’s sample, their geographical share of Bitcoin’s hash rate will be underestimated.
During my stay in Georgia, I befriended miners and often visited mining facilities. These miners have told me that Georgia has at least 125 megawatts (MW) of cryptocurrency mining capacity. I have identified 62 MW from industrial-scale data centers. The remaining 63 MW should then come from lots of small, amateur setups scattered around the country in homes, garages and abandoned warehouses and factories.
As of February 15, CBECI estimates that the Bitcoin network draws 14 gigawatts (GW) of electricity. Based on information from Georgian miners, I estimate that 100 MW of Georgia’s 125 MW total cryptocurrency mining capacity is dedicated to Bitcoin and that Georgia’s hardware is as efficient as the network average. In that case, Georgia should produce about 0.71% of Bitcoin’s total hash rate, multiples higher than CBECI’s 0.18% estimate.
Who Mines Bitcoin In Georgia?
Since 2016, the international bitcoin mining giant Bitfury has operated a 55 MW facility in the outskirts of Georgia’s capital, Tbilisi. The facility consists of standard halls filled with air-cooled machines as well as containers with immersion cooling systems — an advantage in Georgia, where summer temperatures often spike above 40° C.
The author inspecting Bitfury’s immersion cooling system. Source: Jaran Mellerud.
In addition to Bitfury and one other industrial-scale mining facility, thousands of Georgians run smaller, amateur setups scattered around the country. Some mountainous regions have higher concentrations of cryptocurrency miners because of electricity subsidies. Cheap electricity coupled with few other opportunities has led as many as 200,000 Georgians to get involved in cryptocurrency mining, as estimated by The New York Times in 2019. Many amateur miners mine other cryptocurrencies aside from bitcoin, like ether or litecoin.
Electricity Mix
Mountainous Georgia has access to enormous amounts of hydroelectric power. Go for a drive through the country, and you will pass countless rivers and several sizable hydropower plants. According to Our World In Data, the country generates 76% of its electricity from hydroelectric sources, 23% from natural gas and 1% from wind.
Currently, Georgia has only exploited about 25% of its potential for electricity generation. The untapped potential mostly comes from hydro, but wind and solar also have potential.
Even though Georgia has massive energy potential, the buildout of new generation capacity has been insufficient to accommodate the rising electricity demand in recent years. During the dry winters, the country doesn’t generate enough electricity and resorts to importing electricity from Azerbaijan and Russia. I will detail why this electricity deficit can be problematic for bitcoin miners later.
Electricity Prices
Electricity is generally cheaper in Georgia than in most countries. Georgian miners have told me that industrial-scale miners can achieve a price of around $0.04 to $0.06 per kilowatt hour (kWh) — slightly above the median electricity price in the industry, pre Bitooda.
Electricity has become more expensive in Georgia over the last few years. According to Georgian miners I’ve spoken to, existing industrial-scale miners that were early entrants in the electricity market could secure long-term contracts priced cheaply, and it’s unlikely whether new entrants will be able to secure such favorable-priced power contracts.
Electricity is cheaper in remote, mountainous regions because of government subsidies. In some areas, like the disputed area of Abkhazia, electricity is free of charge. Still, industrial-scale miners can’t expect to enjoy subsidized electricity, certainly not in the long term.
Rising Electricity Deficit
The country’s failure to build new generation capacity, coupled with rising electricity demand — partly caused by the unexpected growth of cryptocurrency mining — is causing electricity prices to rise. Until the country develops more generation capacity, electricity prices will continue increasing.
We can see the imbalances between generation and demand in the chart below. Georgia has historically been an electricity exporter but has, from 2017, been a net electricity importer.
Bitfury opened its 55 MW facility in 2016, the last year Georgia enjoyed an electricity surplus. Based on its 55 MW capacity, Bitfury’s annual electricity consumption should be around 0.5 terawatt hours (TWh) — corresponding to about 4% of the country’s total electricity consumption. This amount of electricity consumption should undoubtedly affect the market and is part of why the country has seen a growing electricity deficit since 2017.
Adding in the vast number of smaller amateur miners, the cryptocurrency mining industry’s total annual power consumption in Georgia might be almost 1.1 TWh, assuming a total capacity of 125 MW. If this estimate is correct, nearly 9% of Georgia’s electricity consumption goes to cryptocurrency mining, which undoubtedly makes the industry partly responsible for the country’s growing electricity deficit.
Potential For Development Of New Electricity Generation
IEA estimates that the electricity deficit will continue growing, so to avoid upwards spiraling electricity prices, Georgia must develop new hydropower plants. The potential here is enormous, but a general opposition among the population currently holds back new hydropower projects. Many Georgians have ties to regions that new hydro projects will dam up. During my six-month stay in Georgia, I witnessed at least two large protests against new hydro projects. In addition, hydropower plants are enormous infrastructure projects that take several years to develop.
In addition to its hydro resources, Georgia has excellent potential for building out wind power. The general public doesn’t oppose wind projects as much as it does hydro projects. In addition, wind farms can be built much quicker than hydropower plants. Currently, Georgia only has one wind farm with 20 MW, but the potential is enormous, and several projects are under planning.
A potential growing share of weather-dependent wind power in Georgia’s electricity mix will increase the need for electricity consumers to become more adaptable and regulate their demand after the wind farms’ uncontrollable production patterns. Bitcoin miners are interruptible, meaning they can interrupt their power consumption without additional costs, making them excellent candidates for demand response. As explained by Nic Carter and Shaun Connell in this article, Texas bitcoin miners are helping integrate wind and solar, and they might be able to do the same in the country of Georgia.
GSE, the operator of Georgia’s transmission system, estimates that the country’s generating capacity will more than double to 8,767 MW by 2029, but IEA believes these projections to be unrealistic.
Although the potential for new generation capacity is enormous, I fall in line with the IEA in that it’s unlikely that the country will vastly increase its electricity generation capacity in the next few years, and its electricity deficit will most likely grow even further, increasing electricity prices.
Regulatory Environment
Georgia has low taxes and a very relaxed regulatory environment. The country’s business friendliness fascinated me long before I decided to move there, and I wondered how a former Soviet country became such a libertarian enclave.
During the 1990s, in the chaos that unfolded after the Soviet Union collapsed, Georgia went through some hard years that included a civil war. The apocalyptic period spurred a revolution in 2003, leading to the election of Mikheil Saakashvili as president.
Having been locked behind the iron curtain for 70 years as part of the Soviet Union, the Georgian people thirsted for freedom. The newly-elected Saakashvili’s procedure was to remove all regulations and taxes unless they were considered absolutely essential. They effectively cut 80% to 90% of all regulations in a few months, lifting away an enormous bureaucratic burden from the country’s shoulders.
The reform was a massive success, and the country’s economy has been among the fastest-growing in the world since. In 2019, Georgia ranked seventh on the World Bank’s Ease Of Doing Business Index, higher than the likes of the United Kingdom, Germany, Norway, Sweden and Australia. Georgia’s transformation is awe-inspiring, considering it was extremely poor and plagued by lawlessness just 20 years ago.
Having little bureaucracy to deal with is helpful for any business, but the most important regulatory aspect for a bitcoin miner is the ease of getting electricity and how the electricity market is regulated.
In the past decade, Georgia’s electricity sector has been transformed from a vertically-integrated single-buyer structure into an unbundled system with significant private sector participation in generation and distribution. The country is in cooperation with the EU developing a new market model with more competitive and transparent rules for power trading, and its goal is to meet all EU power sector standards by 2025. These initiatives will deregulate the electricity market even further.
In Georgia, anyone is free to buy electricity from anyone. Bitfury has a direct power purchasing agreement with a power producer and owns a substation, allowing it to avoid dealing with the distribution companies, saving on distribution charges.
A Tax Haven For Bitcoin Miners
Another regulatory advantage in Georgia is low taxes, specifically on cryptocurrencies. There are no specific regulations on cryptocurrency mining or trading, so miners can operate as they please. Individuals in Georgia are exempt from taxes on mining or trading cryptocurrencies, but businesses generally have to pay a 15% corporate income tax and 18% value-added tax (VAT).
For export businesses, it’s possible to avoid most taxes by setting up the business in one of Georgia’s four free economic zones, specifically designed to minimize taxes for export companies to help them successfully compete in global markets. Bitfury’s facility is located in the Tbilisi Free Zone, letting it avoid corporate taxes, VAT, import taxes and other fees.
These free economic zones are highly relevant for bitcoin miners since they compete against miners worldwide, and the only way to stay long-term competitive in this industry is to minimize costs, including taxes.
A building in the Tbilisi Free Zone. Source: Jaran Mellerud.
The World Bank ranks Georgia as the third least-tax-burdened country globally. The low taxes in general, coupled with the possibility of avoiding them altogether if structuring a business the correct way, means that Georgia is a tax haven for bitcoin miners.
Political Risk
Yes, the country has little bureaucracy, low taxes and a relaxed regulatory environment. Still, bitcoin mining is an industry that is vulnerable to political risk since it’s often used as a scapegoat in countries with fragile grid systems. We have seen that happen in many countries before, like in Kazakhstan, Iran and Kosovo.
Assuming that the cryptocurrency mining industry in Georgia draws 125 MW, the industry uses around 9% of the country’s electricity. IEA‘s estimate is even higher at 10% to 15%. Regardless of whether it’s 9% or 15% i,t’s a substantial amount, which increases the country’s reliance on imports in the winter and can potentially weaken its energy security and increase electricity prices for the average consumer.
The vast size of the industry compared to the country’s small size overall may put a barrier to the industry’s potential growth. Not only because more mining will increase electricity prices and make new mining projects unprofitable, but also because the government might turn against the industry if it becomes advantageous for it.
The political risk is higher in some regions of the country than in others. Because the governments in mountain regions subsidize electricity, thousands of people have started small home mining operations, allegedly leading some towns to consume four times more electricity than expected, which has led to efforts to reduce mining. One such effort saw churchgoers urged to swear an oath to St. George that they would not mine cryptocurrencies.
Especially in the disputed area of Abkhazia, there have been problems with the grid, as it has periodically suffered rolling blackouts during the last year. These problems were caused mainly by their biggest hydropower plant being shut down for maintenance for three months and the higher-than-usual electricity demand from countless small home mining operations. The rolling blackouts have led to public anger in the region, which is not sustainable since miners are easily blamed. In Abkhazia, the government relies on subsidizing electricity to gain support. Mining threatens this strategy, so it’s no surprise that the government cracks down on mining in areas with subsidized electricity.
Conclusion
With its cheap and clean hydroelectric power, tiny, mountainous Georgia has attracted a large bitcoin mining industry with industrial-scale operations and countless small home mining setups.
The country’s relaxed regulatory environment and low taxes have helped it rank seventh in the World Bank’s ease of doing business index, making the country attractive not only for bitcoin miners but also for any business.
Georgia is a strong cryptocurrency adopter, and people generally have a positive attitude toward the emerging asset class. Nevertheless, the political risk is considered high because of the country’s significant and growing electricity deficit, incentivizing the government to crack down on miners. In addition, home mining operations challenge the government’s electricity subsidy strategy in some areas of the country. Therefore, the country’s favorable regulations for miners may change in the future.
Since Georgia has recently become dependent on electricity imports, there might not be room for more bitcoin mining until new generation capacity is developed. Still, opportunities exist for miners to contribute to building out new electricity generation, especially wind power.
Source: Jaran Mellerud
This is a guest post by Jaran Mellerud. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.
Disclaimer: The information provided in this article is for informational purposes only and should not be construed as financial or investment advice. Cryptocurrency investments are subject to market risks, and individuals should seek professional advice before making any investment decisions.
The founder of the decentralized exchange, dYdX, asserts that individuals involved in cryptocurrency development should direct their efforts toward international markets beyond the United States for the upcoming five to ten years.
Antonio Juliano conveys to his audience of 49,400 on the social media platform X that the prevailing regulatory uncertainty within the United States does not merit the associated challenges or concessions.
Juliano contends that it would be more prudent for cryptocurrency developers to establish their products in alternative countries and subsequently re-enter the United States from a position of strength.
“Cryptocurrency developers would be well-advised to temporarily discontinue catering to the US market and instead seek re-entry in a span of 5-10 years. The complications and compromises involved do not warrant the endeavor. Moreover, a substantial portion of the market exists overseas. It is recommended to innovate in those regions, ascertain product-market fit, and then return with greater bargaining power…
The paramount objective shared among all stakeholders is to secure a significantly more potent product-market fit for cryptocurrency. The pursuit of a robust product-market fit does not necessitate flawless distribution. A multitude of substantial overseas markets present avenues for experimentation.”
Juliano articulates that advocating for more amiable cryptocurrency regulations demands time, although the process could be expedited if developers manage to introduce products that elicit consumer demand.
“However, this perspective does not undermine the importance of efforts to influence US cryptocurrency policy. On the contrary, such endeavors are absolutely vital. Given the protracted timeframe required (in anticipation of re-entry), and considering that much of the world takes cues from the United States, it becomes evident that our progress in shaping policies hinges upon achieving global-scale product usage.”
The dYdX founder proceeds to emphasize that, with time, American citizens will come to realize that cryptocurrency is inherently aligned with US values and principles.
“The tenets of cryptocurrency closely align with American values. What concept could be more quintessentially American and reflective of capitalist ideals than a financial system conceived for the people, driven by the people, and answerable to the people? This, indeed, constitutes the very essence of our endeavor.”
Disclaimer: The information provided in this article is for informational purposes only and should not be construed as financial or investment advice. Cryptocurrency investments are subject to market risks, and individuals should seek professional advice before making any investment decisions.
Bloomberg Intelligence’s senior macro strategist, Mike McGlone, is conveying a pessimistic outlook for Bitcoin (BTC) in the immediate future.
During a recent interview on Kitco News, McGlone underscored that Bitcoin is currently displaying bearish signals even amidst the ascent of other high-risk assets.
“In the event of a downturn, adhering to a rule prevalent in bear markets, resources across the board could witness a reduction in value, and Bitcoin will not be an exception.
A crucial observation is the necessity for Bitcoin to exhibit divergent strength at a certain juncture, akin to the behavior of treasury bonds and gold in a deflationary economic environment. Regrettably, this pattern has not materialized.
After attaining its peak towards the conclusion of Q1, reaching approximately $31,000, driven by optimism and the influence of exchange-traded funds (ETFs), Bitcoin subsequently retraced to $25,000 or approximately $26,000. Presently, it is manifesting divergent weakness in contrast to the concurrent upsurge in the stock market.”
According to McGlone’s analysis, the ongoing “economic reset” implies a continuation of Bitcoin’s recent downward trend, although he anticipates that the premier cryptocurrency will ultimately attain a six-figure valuation.
“While I believe that Bitcoin will eventually achieve a valuation of $100,000, the onset of a global economic reset, as I anticipate, characterized by a standard deflationary recession leading to a decline in the housing and stock markets, analogous to the conditions of 2008—though arguably exacerbated due to the ongoing removal of liquidity from the system—Bitcoin’s role as an influential precursor comes to the forefront.
This underscores my point that Bitcoin has recently been taking on the role of a harbinger of trends. Its value ascended briefly to around $31,000, only to subsequently trend downwards. From my perspective, it serves as a leading indicator for a majority of high-risk assets.”
As of the time of writing, Bitcoin is trading at $26,079.
Disclaimer: The information provided in this article is for informational purposes only and should not be construed as financial or investment advice. Cryptocurrency investments are subject to market risks, and individuals should seek professional advice before making any investment decisions.
Shiba Inu’s (SHIB) Latest Layer-2 Scaling Solution Nears Public Relaunch Following Recent Technical Challenges
Shytoshi Kusama, the enigmatic lead developer behind the SHIB project, has shared in a recent blog post that significant progress has been made in addressing the technical setbacks that temporarily halted the operation of Shibarium, SHIB’s new layer-2 scaling solution. The initial release of Shibarium encountered network issues that prompted its temporary closure. However, Kusama assured the community that diligent testing and parameter adjustments have led to notable improvements.
Kusama elaborated, stating, “After extensive testing and parameter refinements aimed at achieving a ‘ready’ status, Shibarium has undergone enhancements and optimization. While still undergoing testing, it is now successfully producing blocks.” Additionally, to prevent a recurrence of the past network overload, Kusama revealed the implementation of a new monitoring system and supplementary fail-safe measures. These include rate limiting at the RPC (remote procedure call) level and an automated server reset mechanism in the event of another surge in traffic.
With these advancements in place, the team is on the verge of reopening Shibarium to the public. As part of this progression, more network validators will be integrated into the ecosystem on August 23rd. Kusama emphasized the significance of this step, remarking, “Tomorrow, additional validators will become operational, expanding the options available for staking BONE. This will allow for a distribution of rewards earned through their roles within our community. As testing concludes, we will once again prepare for public utilization.”
Shibarium’s previous technical difficulties were attributed to an overwhelming influx of users and transactions during its initial launch. As of the current writing, SHIB is trading at $0.00000798, marking a 0.4% increase over the past 24 hours.
Disclaimer: The information provided in this article is for informational purposes only and should not be construed as financial or investment advice. Cryptocurrency investments are subject to market risks, and individuals should seek professional advice before making any investment decisions.
FTX’s co-founder, Sam Bankman-Fried, is currently seeking a temporary release from incarceration. The purpose behind this endeavor is to engage in collaborative strategizing with his legal representatives within the confines of the federal courthouse situated in Manhattan.
In a formal letter dispatched to US District Judge Lewis Kaplan on a Friday, Bankman-Fried’s legal team expounded that their client’s capacity to effectively scrutinize the extensive legal documents pertaining to his case has been significantly curtailed during his time spent incarcerated at the Metropolitan Detention Center (MDC) in Brooklyn.
Christian Everdell, the attorney representing Bankman-Fried, divulged that the government recently disseminated a voluminous three-quarters of a million pages of Slack communications. These were originally due several months prior. Expressing the urgency of the situation, Everdell articulated, “Only last week did the government furnish an aggregate of approximately seven hundred and fifty thousand pages of Slack communications that were originally stipulated for release months ago. Given the current timeline, it is a futile endeavor for Mr. Bankman-Fried to endeavor to review these materials.”
He underlined the pivotal necessity for Bankman-Fried to collaborate meticulously with his legal team, emphasizing his dire need to avail himself of an internet-enabled laptop within the courthouse premises. Such a resource would undoubtedly expedite the process of comprehensive document review, an imperative undertaking in light of his impending fraud trial scheduled for the forthcoming October.
In riposte to Bankman-Fried’s plea for reprieve, the prosecuting body voiced apprehensions regarding his adherence to the prerequisites concerning his planned defense strategy. Notably, they underscored that Bankman-Fried is yet to furnish the complete gamut of essential information regarding the counsel upon which he predicated his actions.
The prosecutors proffered caution that unless Bankman-Fried promptly discloses the minutiae regarding the counsel he received and the provenance thereof, any attempt to interject such a defense during the trial should be summarily proscribed.
Although the prosecutors extended an offer to facilitate the transfer of documents onto hard drives for Bankman-Fried’s perusal within the MDC premises, a viable laptop-based solution was deemed unattainable. Initially, the notion of relocating Bankman-Fried to a more compact, upstate correctional facility where he could access an internet-enabled laptop was contemplated by the prosecutors. However, this proposal was met with resistance from prison officials.
Regarded for its starkly onerous conditions, the Metropolitan Detention Center has cultivated a notorious reputation among its inmate population.
Bankman-Fried’s Incarceration Stemming from Unsanctioned Internet Utilization
As documented, Judge Kaplan sanctioned the re-imprisonment of the beleaguered cryptocurrency luminary, citing alleged instances of witness tampering.
In that juncture, Judge Kaplan pronounced that a strong prima facie case existed indicating that the accused had endeavored to tamper with witnesses on no fewer than two separate occasions.
The decision was additionally influenced by Bankman-Fried’s unsanctioned use of the Internet while released on bail under the guardianship of his parents at their abode located in California.
Judge Kaplan discerned that Bankman-Fried had indulged in excessive communication with various individuals via electronic correspondence, even resorting to the utilization of a virtual private network.
Concurrently, the disgraced progenitor of FTX is simultaneously grappling with novel allegations brought forth by the Department of Justice (DOJ). These allegations encompass the misappropriation of customer deposits, including the purported embezzlement of said funds.
An indictment filed on the most recent Monday delineates that Bankman-Fried stands accused of diverting and embezzling customer deposits from the FTX platform. The illicitly obtained funds were purportedly channeled towards political campaign contributions, collectively amassing a substantial sum exceeding one hundred million dollars, in advance of the 2022 US midterm elections.
The indictment further posits that despite Bankman-Fried’s intimate knowledge of FTX’s fiscal insufficiencies, he continued to channel the purloined funds into personal investments, acquisitions, and political campaign contributions.
Disclaimer: The information provided in this article is for informational purposes only and should not be construed as financial or investment advice. Cryptocurrency investments are subject to market risks, and individuals should seek professional advice before making any investment decisions.
The U.S. Securities and Exchange Commission (SEC) is taking significant steps towards pursuing an appeal in their recent legal battle against Ripple, indicating a potential shift in the course of the lawsuit.
James K. Filan, an experienced defense attorney specializing in crypto-related legal matters, has shed light on the latest developments. District Judge Analisa Torres has initiated a structured process for considering the SEC’s request to present an interlocutory appeal—a move that would allow the SEC to contest certain aspects of the ongoing case.
It’s important to note that this preliminary step does not guarantee the authorization of an interlocutory appeal; rather, it signifies that the SEC has been given the opportunity to formally request such an appeal.
Judge Torres has outlined the timeline for this process in her official order. The SEC is expected to file their motion for the appeal by August 18th. Subsequently, Ripple is given until September 1st to submit their opposition papers. If the SEC deems it necessary, they have until September 8th to file a reply.
The news of these developments had an immediate impact on the cryptocurrency market. Following the announcement of the judge’s order, the value of XRP experienced a sharp decline. The price, which had been trading at approximately $0.571, dropped to around $0.499 at the time of writing. This decrease of over 12% aligns with the broader trends observed across the cryptocurrency landscape.
The legal clash between the SEC and Ripple began when the regulatory agency filed a lawsuit against the San Francisco-based payments company in late 2020. The SEC alleged that Ripple had engaged in the sale of XRP without registering it as a security.
In a significant turn of events last month, Judge Torres issued a ruling that had mixed implications for both parties. She determined that Ripple’s automated programmatic sales of XRP, which occurred on the open market, could not be classified as securities offerings—a pivotal point of disagreement between the SEC and Ripple.
However, the judge did uphold a key aspect of the SEC’s argument. She agreed with the agency’s assertion that Ripple’s direct sales of XRP to institutional buyers indeed amounted to a securities offering, reinforcing the complexity of the case.
As the legal battle continues to unfold, the spotlight remains on the actions and responses of the SEC and Ripple, and how their ongoing dispute could shape the future regulatory landscape for cryptocurrencies and digital assets.
Disclaimer: The information provided in this article is for informational purposes only and should not be construed as financial or investment advice. Cryptocurrency investments are subject to market risks, and individuals should seek professional advice before making any investment decisions.