Behind Russia’s Bitcoin boom: Crypto mining in “shadow regions”

By Neil Barnett, RUSI

Compiled by: Felix, PANews

In a world where the Kremlin is increasingly insular and focused on foreign influence operations, there is a strong incentive to engage in Bitcoin mining for cross-border activities. As the Russian gas market shrinks, converting excess energy into electricity and then intocryptocurrencyThe phenomenon of illegal piracy is gaining ground. Since 2018/19, it has been happening on a large scale in Russia’s “shadow territories” (Transnistria, Donbass and Abkhazia). The use of these legally unclear categories allows for the concealment of facts and allows for the plundering of the Russian state’s gas and electricity resources. And, as is typical of post-Soviet Russia, private sector actors are conducting covert operations.

How to turn cheap energy into anonymous currency

比特币的匿名性受到加密拥护者的质疑，他们指出比特币是可追踪的，加密货币实际上提供了前所未有的透明度。虽然这在一定程度上是正确的，但有几种方法可以掩盖踪迹以达到邪恶的目的。这些方法包括使用 Tornado Cash 等混币器来掩盖链上追踪；使用名为「The Onion Router」的暗网系统；或者干脆以现金溢价的方式从所有者手中购买离线比特币walletMining new Bitcoins also provides a degree of protection becauseTokenThere was no history at the time of the initial transfer, so no data could be provided to investigators.

In order to mine, the Bitcoin network requires computer processing power. Because the system is decentralized, Bitcoin's designers provide incentives for parties to provide computing power. The incentive is to deliver new Bitcoins to nodes that provide processing power for network transactions. "Bitcoin miners" invest in "mining equipment" (dedicated servers) to perform these calculations and generate new Bitcoins.Token.

The key cost variable in Bitcoin mining is the energy required to power these servers, which is one of the reasons why Russia’s “shadow territories” are attractive. Research conducted by Nftevening.com in September 2024 showed that “Bitcoin mining in Ireland costs $321,112, while in Iran, miners only pay $1,324, which is more than 240 times cheaper.” Even with Bitcoin approaching $100,000, Bitcoin mining is still uneconomical in many jurisdictions.

Transnistria, Donbass, and Abkhazia were not included in the list of the 10 cheapest regions for Bitcoin mining, as they are all gray areas beyond the control of sovereign governments. In addition, the methods of obtaining electricity in these regions were not recorded in the survey, which was based on the electricity prices published by the state. If the cost of electricity is close to zero and the relevant regions are not internationally recognized, such research methods will be invalid.

Gray Area

The “shadow territories” of Transnistria, Donbass and Abkhazia (all under Russian “protection”) offer special opportunities for Bitcoin mining for those allied with the Kremlin.

Transnistria: Using energy from the MGRES power station, which is fueled by natural gas provided free of charge by Gazprom. The technopark established to attract miners provides electricity at $0.043 per kilowatt-hour.

Donbass: Since 2021, electricity from coal-fired power plants has been used, which in normal times would provide power for heavy industry.stealThe Ministry of Human Resources reported that there is a mining center at the Donetsk Metal Plant and at least one more, both in the federalSafetyThe Federal Security Bureau (FSB) operates under its umbrella.

Abkhazia: Since 2015/16, it has been using electricity from the Enguri hydropower station on the border with Georgia, as well as imported Russian electricity. The cost of electricity is as low as $0.005 per kWh. However, open source reports show that mining in Abkhazia and Georgia itself has fallen sharply since 2023.

DeniesXiaobai NavigationThe banks of the Te River: a perfect environment for Bitcoin mining

Transnistria has access to free natural gas from Gazprom and a large amount of power generation capacity, making it an attractive location for Bitcoin mining.

The key factor is the arrangement between Moldova proper and Transnistria for gas supply and power generation. Both regions receive gas from Gazprom via pipeline, and both regions’ gas is billed through Gazprom’s contract with Moldovagas (Moldovagas 50%’s shares are controlled by Gazprom). But while Moldova pays for the gas, Transnistria’s gas is nominally added to Moldovagas’s debt of about $709 million, an amount that has little prospect of being repaid and is controversial.

Since Maia Sandu took office as Moldova’s president in 2021, the country has reduced its reliance on this energy source. But what has not changed is that Transnistria’s natural gas is effectively free and is used to power the 2,500-MW MGRES power station. Moldova also relies on MGRES for about 80% of electricity, illustrating the strange interdependence between otherwise hostile entities.

The free energy is a subsidy from Moscow designed to keep Transnistria’s outdated, polluting and inefficient heavy industries, including chemicals, steel and cement, running. It also provides very cheap domestic natural gas, helping to consolidate popular support for the regime there.

The scale of this subsidy can be seen in the staggering gas consumption of the two entities: Transnistria (population 300,000) consumes about 2 billion cubic meters per year, while Moldova proper (population 2.5 million) consumes about 1 billion cubic meters per year, according to information provided by the Moldova government. At the delivery point, Transnistria receives about 16 times more gas per capita than Moldova (this figure is offset, however, by the fact that some of Transnistria's gas is used to generate electricity at the MGRES plant and then sold to Moldova). Whether this situation will continue until 2025 is unclear, as Ukraine has refused to renew its gas transit agreement with Gazprom.

目前，该地点为比特币挖矿提供了近乎完美的环境。鉴于 MGRES 发电站拥有大量电力容量和免费天然气的使用权，参与比特币挖矿的动机显而易见。 2018 年，德涅斯特河沿岸地区通过了一项立法，为加速加密货币挖矿的发展提供了明确的法律基础。

In 2019, a state-owned mining enterprise zone called Tehnopark OJSC was heavily advertised to attract foreign miners, offering electricity at $0.043 per kilowatt-hour. This is a very competitive price; according to BestBrokers.com research, electricity prices in Kazakhstan in 2024 are $0.073 per kilowatt-hour and $0.127 per kilowatt-hour in the United States. While there is no reliable data available, the fact that Transnistria gets free gas means this price could be the cheapest in the world.

According to BestBrokers.com, the electricity consumption per Bitcoin is currently 854,403 kWh (a figure that has risen significantly in recent years). Based on the above figures, this means that the electricity cost per Bitcoin in Transnistria is $36,739, while Bitcoin is about $97,000. The corresponding figures for Kazakhstan are $62,371 and for the United States $108,509 (this US figure is a national average; miners may operate in states where electricity is cheaper).

Since 2019, however, there have been few further reports and the website is no longer online, although it remains operational until 2022. This does not mean that Bitcoin mining in Transnistria has ceased, but rather reflects that international miners (except Russians) have not flocked to Tiraspol as hoped. Therefore, given the wartime conditions and the need for caution, there was no need for publicity.

The report by the Moldova NGO Anticoruptie indicates that the main mining players are Goweb International Limited and Tirastel GmbH.

While Western investors are allegedly involved, the “investors” are primarily Russian, with links to Gazprom (benefiting from some of the gas subsidies that Gazprom provides to Transnistria).

Goweb International Limited is an interesting case. Anticoruptie reported that in January 2018, the British Virgin Islands entity Goweb International Ltd spent $8.7 million on crypto mining equipment, shipped it to Transnistria, and the funds were transferred through ABLV Bank in Latvia. The following month, the U.S. Treasury Department’s Financial Crimes Enforcement Network named ABLV as a target of investigation for “institutionalized money laundering” related to “Azerbaijan, Russia, and Ukraine.” ABLV was also at the center of the 2016 “money laundering scandal” in which Moldova Bank wassteal 1 billion US dollars.

The Anticoruptie report states:

“Goweb International Limited is an offshore company managed by a group of businessmen from Russia, led by Nikita Morozov, that specializes in the production and marketing of mining equipment.

The company’s official website shows that it has the largest mining capacity in Moldova, which is 40 MWh, equivalent to six to eight mining farms.”

With Russia’s invasion of Ukraine in February 2022, Moscow’s ability to sell natural gas internationally has diminished, and the Russian state’s incentive to divert natural gas to Bitcoin mining has only increased.

How Bitcoin is used

There is every reason to believe that “shadow state” Bitcoin mining, while being conducted by private sector actors, is run under the auspices of the Kremlin. In Transnistria, this connection is very clear due to the direct involvement of Igor Chaika. He is nominally the Transnistrian representative of the Russian business organization “Delovaya Rossiya”, but it is known that he is the de facto federal leader of the region.SafetyHead of Bureau.

Chaika is the son of Yuri Chaika, the former Russian prosecutor general (2006-2020), who has been closely associated with the Kremlin’s abuse of the justice system. His father currently serves as Putin’s envoy to Ramzan Kadyrov in Chechnya. Meanwhile, his other son Artem Chaika is a businessman who serves as Kadyrov’s adviser on “humanitarian, social and economic affairs” — a role that presumably leaves him plenty of time to pursue other interests.

Chisinau-based Balkan Investigative Reporting Network reported in 2018 that the region was in the early stages of Bitcoin mining:

"Chaika later told Russian daily Kommersant that he hopes to move forward with the Bitcoin plan. "Now there are the prerequisites for moving forward." "We agree with the Tiraspol governor that after the law comes into effect, the authorities will provide us with the infrastructure for the project. We expect them to make recommendations on the location for creating the mine."

Wired reported that Chaika “stated that he was ready to invest 400 million rubles in cryptocurrency mining in Transnistria.”

According to the sanctions imposed by the Swiss SECO on Igor Chaika in August 2024, he is responsible for financing the Russian FederationSafety局（FSB）在 Moldova 本土的破坏稳定活动。瑞士制裁声明称，他与负责 Moldova 事务的联邦安全局副局长德米特里米柳京 (Dmitry Milyutin) 密切合作。此外，Chaika 与在破坏国家稳定中所起作用的 Moldova 人（包括 Ilan Shor 和 Vladimir Plahotniuc）一起被列入制裁名单，引文指出：

「Igor Chaika 是一名俄罗斯商人，负责为俄罗斯联邦安全局（FSB）旨在破坏 Moldova 共和国稳定的项目筹集资金。他扮演俄罗斯「金库」的角色，将资金输送到 Moldova 共和国的 FSB 资产，以使该国处于克里姆林宫的控制之下……」

Given Chaika’s role in establishing the Russian-Transnistrian Bitcoin mining cooperation since 2018, the resulting Bitcoins could very well be used to destabilize Moldova.

The use of Bitcoin to support Kremlin subversion extends far beyond Moldova. For example, a loophole in the United States allows political donations of less than $200 to be anonymous. Large sums can be automatically divided and transferred electronically as small donations, and cryptocurrencies add a layer of anonymity. In 2020, for example, the Trump campaign received $378 million in this way, while the Biden campaign raised $406 million. There is simply no way for the campaigns themselves or the Federal Election Commission to determine where the nearly $800 million came from.

In 2018, the U.S. Department of Justice filed an indictment against Netyksho and others. They were accused of being members or associates of GRU (Russian Military Intelligence Agency) Unit 26165 (better known as "Fancy Bear") and Unit 74455 ("Sandworm"). The indictment stated that the organization was responsible for the DCLeaks and Guccifer 2.0 incidents:

“While the conspirators transacted in a variety of currencies, including the U.S. dollar, they primarily used Bitcoin to purchase servers, register domain names, and otherwise pay for their hacking activities…

Cryptocurrencies are equally effective in evading sanctions and paying for embargoed military equipment. This is especially true when working with partners such as India, where banks are vulnerable to secondary sanctions if discovered. In September 2024, the Financial Times published leaked materials detailing the establishment of an India-Russia “closed circuit” transaction route to evade sanctions:

Poida outlined a five-stage plan to help Russia use the rupee and establish a stable supply of dual-use components. Russia will create a "closed payment system" between Russian and Indian companies that is not subject to Western supervision, "including the use of digital financial assets"...

In November 2024, the U.S. Treasury Department sanctioned four employees of VTB Shanghai and Sberbank New Delhi, a move that was likely a warning to the banking community. These restrictions are expected to increase the appeal of Bitcoin as a means of settlement because it does not put local banks at risk.

In light of this analysis, Bitcoin mining in Russia’s “shadow regions” is an undeniably lucrative and virtually anonymous way to convert vast amounts of power into money that can enrich well-connected Russians and allow them to live a life of luxury in places like Dubai and Türkiye.

It also poses multiple threats, including destabilizing its neighbors, exerting covert influence over Western democracies, and facilitating sanctions evasion in collaboration with allies such as India.

随着乌克兰盟友继续努力限制克里姆林宫在乌克兰的非法侵略战争的资金和资源，打击这种挖矿活动是一项重要优先事项，需要付出专门的努力。这可能包括：网络战措施；针对新铸造的代币的BlockchainTracking to expose those tokens that are linked to illegal Russian activity; imposing sanctions on digital asset platforms that facilitate mining; and developing policies to cut off cheap energy in “shadow regions.” Western restrictions often lag behind Russia’s circumvention tactics; when it comes to the vulnerability of Bitcoin mining, the evidence is clear.

The article comes from the Internet:Behind Russia’s Bitcoin boom: Crypto mining in “shadow regions”

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