Unveiling the Bitcoin Boom in Russia: Cryptocurrency Mining in the "Shadow Regions"

Original Title: The Other Bitcoin Boom: Crypto Mining in Russia's Shadow Territories

Original Author: Neil Barnett, RUSI

Original Translator: Felix, PANews

In a world where the Kremlin is increasingly isolated 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, the phenomenon of converting surplus energy into electricity and then into cryptocurrency is gradually gaining popularity. Since 2018/19, this has been occurring on a large scale in Russia's "shadow territories" (Transnistria, Donbas, and Abkhazia). Utilizing these legally ambiguous areas can obscure the facts and allow for the plundering of Russia's gas and electricity resources. Moreover, as is typical in post-Soviet Russia, private sector participants are conducting clandestine operations.

How to Convert Cheap Energy into Anonymous Currency

The anonymity of Bitcoin is questioned by crypto advocates, who point out that Bitcoin is traceable and that cryptocurrencies actually provide unprecedented transparency. While this is true to some extent, there are several ways to obscure traces for nefarious purposes. These methods include using mixers like Tornado Cash to obscure on-chain tracking; employing a dark web system known as "The Onion Router"; or simply purchasing offline Bitcoin wallets from owners at a cash premium. Mining new Bitcoins also provides a degree of protection, as tokens have no transaction history when first transferred, thus providing no data to investigators.

To mine, the Bitcoin network requires computational power. Because the system is decentralized, Bitcoin's designers incentivize those providing computing power. The incentive is the delivery of 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 tokens.

The key cost variable in Bitcoin mining is the energy required to power these servers, which is one reason why Russia's "shadow territories" are attractive. A study conducted by Nftevening.com in September 2024 indicates that "the cost of Bitcoin mining in Ireland is $321,112, while in Iran, miners pay only $1,324, making it over 240 times cheaper." Even with Bitcoin nearing $100,000, mining in many jurisdictions remains unprofitable.

Transnistria, Donbas, and Abkhazia do not rank among the ten cheapest regions for Bitcoin mining, as they are all gray areas beyond the control of sovereign governments. Furthermore, the methods these regions use to obtain electricity are not recorded by investigations, which rely on state-published electricity prices. If electricity costs are close to zero and the relevant areas are not internationally recognized, such research methods become ineffective.

Gray Areas

The "shadow territories" of Transnistria, Donbas, and Abkhazia (all under Russian "protection") provide unique opportunities for Bitcoin mining for those aligned with the Kremlin.

Transnistria: Uses energy from the MGRES power station, which is fueled by gas provided for free by Gazprom. Technology parks established to attract miners offer electricity at $0.043 per kilowatt-hour.

Donbas: Has been using power from coal-fired power stations since 2021, which normally would supply heavy industry. Electricity stolen from the Zaporizhzhia Nuclear Power Plant may also be used. The Ministry of Labor reports that the Donetsk Metallurgical Plant has a mining center, and at least one other center operates under the protection of the Federal Security Service (FSB).

Abkhazia: Has been using electricity from the Inguri Hydropower Station bordering Georgia and imported Russian electricity since 2015/16. Electricity costs as low as $0.005 per kilowatt-hour. However, public sources report a sharp decline in mining volumes in Abkhazia and mainland Georgia since 2023.

Transnistria: The Perfect Bitcoin Mining Environment

Transnistria has access to Gazprom's free gas and substantial power generation capacity, making it an extremely attractive location for Bitcoin mining.

A key factor is the arrangement between Moldova and Transnistria regarding gas supply and power generation. Both regions receive gas from Gazprom via pipelines, and the gas in both regions is billed through Gazprom's contract with Moldovagas (50% of Moldovagas is controlled by Gazprom). However, while Moldova pays for the gas, the gas nominally supplied to Transnistria has been added to Moldovagas's debt of about $709 million, which is unlikely to be repaid and is contentious.

Since Maia Sandu became president of Moldova in 2021, the country has reduced its dependence on this energy. However, what has not changed is that the gas in Transnistria is effectively free, used to power the 2,500 MW MGRES power station. Moldova also relies on MGRES for about 80% of its electricity, illustrating a strange interdependence between originally hostile entities.

This free energy is a subsidy from Moscow, aimed at keeping Transnistria's outdated, polluting, and inefficient heavy industries, including chemicals, steel, and cement, operational. It also provides very cheap household gas, helping to solidify public support for the local regime.

According to information provided by the Moldovan government, the staggering gas consumption of the two entities illustrates the scale of this subsidy: Transnistria (population 300,000) consumes about 2 billion cubic meters annually, while Moldova (population 2.5 million) consumes about 1 billion cubic meters annually. At the delivery point, the per capita gas reception in Transnistria is about 16 times that of Moldova (however, this figure is offset by the fact that some of Transnistria's gas is used to generate electricity at the MGRES plant, which is then sold to Moldova). It is unclear whether this situation will continue until 2025, as Ukraine refuses to renew the gas transit agreement with Gazprom.

Currently, this location provides an almost perfect environment for Bitcoin mining. Given MGRES's substantial power capacity and access to free gas, the motivation to participate in Bitcoin mining is evident. In 2018, the Transnistrian region passed legislation to provide a clear legal basis for accelerating the development of cryptocurrency mining.

In 2019, a state-owned mining enterprise zone named "Tehnopark OJSC" received significant promotion, aimed at attracting foreign miners by offering electricity at $0.043 per kilowatt-hour. This is a highly competitive price; according to BestBrokers.com, the electricity price in Kazakhstan in 2024 is $0.073 per kilowatt-hour, and in the United States, it is $0.127 per kilowatt-hour. Although there is currently no reliable data, the fact that Transnistria has access to free gas suggests that this price may be the cheapest in the world.

According to BestBrokers.com data, the current electricity consumption per Bitcoin is 854,403 kilowatt-hours (this figure has risen significantly in recent years). Based on these numbers, this means that the electricity cost per Bitcoin in Transnistria is $36,739, while Bitcoin is approximately $97,000. The corresponding figures for Kazakhstan are $62,371, and for the United States, $108,509 (this U.S. figure is a national average; miners may operate in states where electricity is cheaper).

However, since 2019, there have been almost no further reports, and the website is no longer online, although it operated until 2022. This does not mean that Bitcoin mining in Transnistria has stopped, but rather reflects that international miners (excluding Russians) have not flocked to Tiraspol as hoped. Therefore, given wartime conditions and the need for caution, there is no need for promotion.

A report by the Moldovan NGO Anticoruptie indicates that the main mining participants are Goweb International Limited and Tirastel GmbH.

While it is claimed that Western investors are involved, the "investors" are primarily Russians, benefiting from the gas subsidies provided by Gazprom to Transnistria.

Goweb International Limited is an interesting case. The Anticoruptie report states that in January 2018, the British Virgin Islands entity Goweb International Ltd spent $8.7 million purchasing crypto mining equipment, which was shipped to Transnistria, with funds transferred through Latvia's ABLV Bank. The following month, the U.S. Treasury Department's Financial Crimes Enforcement Network targeted ABLV for investigation due to "institutionalized money laundering" related to "Azerbaijan, Russia, and Ukraine." ABLV was also at the center of the 2016 "money laundering scandal," in which $1 billion was stolen from Moldova's banks.

The Anticoruptie report states:

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

The company's official website indicates that it has the largest mining capacity in Moldova, at 40 MWh, equivalent to six to eight mining farms.

With Russia's invasion of Ukraine in February 2022, Moscow's ability to sell gas internationally has weakened, and the motivation for the Russian state to repurpose gas for Bitcoin mining has only increased.

How Bitcoin is Used

There is ample reason to believe that Bitcoin mining in the "shadow state," although conducted by private sector participants, operates with the support of the Kremlin. In Transnistria, this connection is particularly evident due to the direct involvement of Igor Chaika. He is nominally the representative of the Russian business organization "Delovaya Rossiya" in Transnistria, but it is well known that he is the de facto head of the FSB in the region.

Chaika is the son of former Russian Prosecutor General Yuri Chaika (2006-2020), who is closely associated with the Kremlin's abuse of the judicial system. His father currently serves as an envoy for Ramzan Kadyrov, sent by Putin to Chechnya. Meanwhile, his other son, Artem Chaika, is a businessman and serves as Kadyrov's advisor on "humanitarian, social, and economic affairs"—a role that presumably allows him ample time to pursue other interests.

The Balkan Investigative Reporting Network in Chișinău reported in 2018 that the region was in the early stages of Bitcoin mining:

"Chaika subsequently told the Russian newspaper Kommersant that he hoped to continue advancing the Bitcoin project. 'Now there are prerequisites for further advancement.' 'We agree with the opinion of the Tiraspol chief executive that once the law comes into effect, the authorities will provide us with the infrastructure for the project. We look forward to their suggestions on the locations for creating mining farms.'"

Wired reported that Chaika "indicated he was prepared to invest 400 million rubles in cryptocurrency mining in Transnistria."

According to sanctions imposed by Switzerland's SECO on Igor Chaika in August 2024, he is responsible for funding the FSB's destabilization activities in Moldova. The Swiss sanctions statement notes that he works closely with Dmitry Milyutin, the FSB deputy director responsible for Moldova affairs. Additionally, Chaika is listed on the sanctions list alongside Moldovans involved in destabilizing the country (including Ilan Shor and Vladimir Plahotniuc), with the citation stating:

"Igor Chaika is a Russian businessman responsible for raising funds for projects aimed at destabilizing the Republic of Moldova by the FSB. He acts as a 'treasurer' for Russia, channeling funds to FSB assets in the Republic of Moldova to keep the country under Kremlin control…"

Given Chaika's role since 2018 in establishing Russian-Transnistrian Bitcoin mining cooperation, the resulting Bitcoins are likely used to undermine Moldova's stability.

The use of Bitcoin to support Kremlin subversive actions extends far beyond Moldova. For example, a loophole in the U.S. allows anonymous political donations under $200. Large sums can be automatically split and electronically transferred in small donations, while cryptocurrency adds a layer of anonymity. For instance, in 2020, the Trump campaign raised $378 million in this manner, while the Biden campaign raised $406 million. Neither the campaign teams nor the Federal Election Commission could determine the source of nearly $800 million in funds.

In 2018, the U.S. Department of Justice indicted Netyksho and others, accusing them of being members or accomplices of the GRU's 26165 unit (more commonly known as "Fancy Bear") and 74455 unit ("Sandworm"). The indictment states that the organization was responsible for the DCLeaks and Guccifer 2.0 incidents:

"Although the conspirators transacted in various currencies (including U.S. dollars), they primarily used Bitcoin to purchase servers, register domain names, and otherwise pay for hacking activities…"

Cryptocurrency is equally effective in evading sanctions and paying for embargoed military equipment, especially when cooperating with partners like India, where banks can easily face secondary sanctions if discovered. In September 2024, leaked materials published by the Financial Times detailed the establishment of a closed trading route between India and Russia to evade sanctions:

Poida outlined a five-phase plan to help Russia use rupees and establish a stable supply of dual-use components. Russia will create a "closed payment system" between Russian and Indian companies, free from Western oversight, "including the use of digital financial assets"…

In November 2024, the U.S. Treasury sanctioned four employees of VTB Bank's Shanghai branch and Sberbank's New Delhi branch, likely as a warning to the banking sector. These restrictions are expected to increase the appeal of Bitcoin as a settlement method, as it does not expose local banks to risk.

Given this analysis, Bitcoin mining in Russia's "shadow regions" is an undeniable, profitable, and effectively anonymous way to convert significant power into money. This money can make closely connected Russians wealthy, allowing them to live affluent lives in places like Dubai and Turkey.

It also poses various threats. These threats include undermining the stability of neighboring countries, exerting covert influence on Western democracies, and facilitating evasion of sanctions in cooperation with allies like India.

As Ukraine's allies continue to work to limit the Kremlin's funding and resources for its illegal war of aggression in Ukraine, combating this mining activity is a critical priority that requires dedicated efforts. This may include: cyber warfare measures; blockchain tracking of newly minted tokens to expose those associated with illegal Russian activities; sanctions on digital asset platforms that promote mining; and policies to cut off cheap energy in the "shadow regions." Western restrictions often lag behind Russia's evasion strategies; when it comes to the vulnerabilities of Bitcoin mining, the evidence is clear.