Substations on fire: Abkhazia closes bitcoin farms

Substations on fire
Abkhazia closes bitcoin farms

Because electricity is cheap, Abkhazia is becoming a bitcoin miner’s paradise. But because lines collapse under the load, the government pulls the plug and threatens heavy fines.

For Inal from the Caucasus, the Bitcoin hype with drastically increased exchange rates is no reason to be happy. “I could cry,” says the 30-year-old, who prefers not to reveal his full name. The young man from Abkhazia had hoped for a quick buck. He and friends used his savings to buy powerful computers for $ 20,000 that were supposed to help him “mine” the crypto currency.

At first everything went well, the business said he was pouring $ 5,000 a month into his cash register. But he wasn’t the only one who wanted to participate in the boom – many more followed suit. The problem: The computers need enormous amounts of electricity to produce Bitcoin. That was then missing elsewhere in the country. Now the government has pulled the plug and hunted down the miners.

“That is unjust, very unjust,” says Inal. After all, the government initially allowed prospecting, thereby ensuring that many other crypto gold diggers jumped on the bandwagon. In fact, according to the authorities in Abkhazia, at least 625 such “crypto” farms have emerged in the past two years alone. Local people say there are many more, because recently many families have simply bought computers to get part of the cake. The temptation is great: if you got around 3100 dollars for a Bitcoin at the end of 2018, it was around 58,000 a few days ago.

Immense energy consumption

Prospecting was illegal until late summer 2020. Then the government allowed it under certain conditions. As a result, electricity consumption rose so sharply that the first lines collapsed in November. Some substations even went up in flames, entire towns remained without electricity for a long time.

When a dam had to be repaired in December and the power station there, which supplies most of the region with energy, had to be largely shut down, the government pulled the rip cord. Bitcoin mining was banned again, there were raids on houses, factory buildings, garages and restaurants and the authorities cut the power cables. Mining consumes so much energy because the IT chips that compute the Bitcoin are working at their peak. This generates a lot of heat, which is why it is important to keep the devices cool.

According to Maximilian Hess of the Foreign Policy Research Institute in the USA, the fact that prospecting is popular in Abkhazia is due on the one hand to the remote geopolitical location of Abkhazia, where there are hardly any investors. That is why there is a lack of attractive jobs. Like Inal, who, in his own words, was unemployed before his Bitcoin project.

Electricity is cheap

Another reason is the low energy prices. At $ 0.005, a kilowatt hour of electricity in Abkhazia costs ten times less than in neighboring Georgia and twenty times less than in the USA. As mining has become more and more attractive in recent years, electricity consumption in the country rose by an estimated 20 percent in 2020 alone, according to the government.

And in times of climate change, high energy consumption has long been an issue elsewhere in the world. Because power generation often also means greenhouse gases that are harmful to the climate. “It is estimated that the power consumption of digital Bitcoin mining exceeds the total power consumption of a country the size of Argentina with 45 million inhabitants,” said Mark Dowding of investment manager BlueBay Asset Management recently. It seems as if the hipsters and millennials who jumped at cryptocurrencies don’t care about the horrendous power consumption. If the prices for cryptocurrencies continued to go through the roof, the incentive to mine would also increase. “Energy consumption could therefore continue to rise at an alarming rate.” According to the Technical University of Munich, the computer capacity used for mining has quadrupled since 2018. 68 percent of the computing power of the Bitcoin network would be in Asian countries, 17 percent in Europe and 15 percent in North America.

The problem is not over in Abkhazia either. According to Inal, many miners laid new power cables after the raids. A new law is therefore already being debated in parliament. According to this, the police should also be able to confiscate computer equipment in the future and households will have to pay a fine if they use more than a certain amount of electricity. For some Abkhazians, the story could end badly as a result. “Some people bought computer chips for a lot of money when the business was legalized in September,” says Inal. “They sold their car for it or ran into debts that they can’t pay back now. It’s really a big problem.”

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