This August, a cryptocurrency law was approved by the Russian Parliament and will come into effect this November. Although somewhat late compared to other countries, the law has reignited the idea of establishing mining farms in the Arctic.
Before, this topic was discussed rather often. For example, in 2018, during the global cryptocurrency boom. However, throughout this time, mining has remained in a rather grey area of the Russian legal framework, making it more difficult to mine cryptocurrency on an industrial scale and turning away potential investors in the field.
The region has suddenly attracted significant interest because there are two main challenges associated with mining:
The Russian Arctic effectively addresses both of these issues. The climate allows for the cooling of equipment without incurring additional costs. Energy is cheap, and in some regions, like the Murmansk Region, it is produced excessively. There has even been discussion about attracting more miners to ‘fill’ the capacities of wasted energy from hydroelectric stations.
The best example of a cryptocurrency ‘paradise’ in the Arctic is Iceland. This Arctic nation possesses both advantages that we’ve listed here. Cheap, green energy, along with a cold climate, has effectively made the country the most attractive location for mining farms and data centres. However, the country might now change its direction towards AI.
The Russian North does not produce much geothermal electricity, with the exception of Kamchatka, which is still not a very profitable region for cryptocurrency mining from a logistical standpoint. However, the conditions in the Russian North are very similar and, in many cases, more beneficial than those in Iceland. For instance, there are no volcanic eruptions, and hydropower serves as a source of cheap, green energy, providing approximately 20% of energy in the country, opening opportunities for Russia to increase its cryptomining presence.
We must bear in mind that there hasn’t been a completely clear legal framework in place, so many cases may remain unknown and in the shadier areas of the business. Therefore, we may expect a sudden increase in the number of Russian companies entering the market when the law gains effect.
However, there are some public success stories that have specifically adapted to the conditions of the Russian Arctic for mining. For example, there is the story of a ‘crypto-hotel’ that has provided hosting services for mining equipment.
Interestingly, these businessmen started out in central Russia and, over time, turned their attention to Arctic cities. In the North, the company currently operates facilities in Norilsk and Khanty-Mansiysk, with one facility under construction in Krasnoyarsk.
The most notable enterprise in Russia is the Association of Industrial Mining, which has united the five largest mining companies in 2023. Their combined capacity is estimated at 1.5 GW.
Russian experts say that there are ‘globally competitive’ benefits for the country to increase its presence in the cryptocurrency market. For instance, Donald Trump’s recent campaign statements related to cryptocurrency and his “pledge to the bitcoin community”—which resulted in a subsequent price increase—certainly draw attention back to the sector.
Another important factor that might contribute to the rapid establishment of the crypto industry in the Russian Arctic is that this issue has almost instantly gained an aura of international cooperation. It will be discussed at the Eastern Economic Forum in September: an Industrial Mining session is listed as a ‘driver’ of international cooperation and features participants from the banking sector and the Association of Industrial Mining.
This fact certainly draws attention to Sino-Russian relations in the crypto sphere, as China is currently increasing its presence in cryptocurrency. Once again, Trump’s words serve as proof: “If we don’t embrace crypto and bitcoin technology, China will, and other countries will. They’ll dominate, and we cannot let China dominate. They are making too much progress as it is.”
From this standpoint, it might just be the time for Russia to hop on the crypto bandwagon.
A major problem is the shortage of graphics cards. This has been a recurring issue for cryptocurrency mining; it resurfaces with every surge in the market and will likely arise again in the future.
Graphics cards disappear from the market very quickly. For small-scale miners, this could pose a significant challenge, as it becomes increasingly difficult to invest in top-tier graphics cards. For industrial-scale operations and the state, this might mean greater dependence on Chinese production, which is not ideal too.
Another issue is that mining is highly infrastructure-oriented, which is not the case for many Arctic cities in Russia. However, this characteristic also represents a great opportunity for development, as it could help to diversify the specialisation of settlements in the North. Mining might be one of the most modern and beneficial solutions for Arctic development to expand a list of common economic spheres.
Overall, mining appears to be a promising sector for investment, and we are likely to see rapid development in this area, possibly even on an international scale. A lack of policy has been an obstacle for a long time, but now—no more. We should expect results soon, as the sector will likely attract both private and state investment.
Dmitry Tarasov
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The Baimskaya Copper. The Baimskaya Deposit
