Original title: The Other Bitcoin Boom: Crypto Mining in Russia’s Shadow Territories
Original author: Neil Barnett, RUSI
Original translation: 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 excess energy into electricity and then into cryptocurrency is becoming more prevalent. Since 2018/19, this has occurred on a large scale in Russia's 'shadow territories' (Dniester region, Donbas, and Abkhazia). Exploiting these legally ambiguous categories can conceal the facts and allow the plundering of Russia's state gas and electricity resources. Moreover, as is typical in post-Soviet Russia, private sector participants are conducting covert 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 cryptocurrencies actually provide unprecedented transparency. While this is somewhat true, there are several ways to obscure traces for nefarious purposes. These methods include using mixers like Tornado Cash to obscure on-chain tracking; using a dark web system called 'The Onion Router'; or simply purchasing offline Bitcoin wallets from owners at a cash premium. Mining new Bitcoins also provides a certain level of protection, as tokens have no history at the time of their first transfer, and thus cannot provide data to investigators.
To mine, the Bitcoin network requires computing power. As the system is decentralized, the designers of Bitcoin provide incentives for 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' (specialized 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 of the reasons the 'shadow territories' in Russia are attractive. A study conducted by Nftevening.com in September 2024 indicated that 'the cost of Bitcoin mining in Ireland amounts to $321,112, while in Iran, miners only pay $1,324, making it over 240 times cheaper.' Even if Bitcoin approaches $100,000, mining in many jurisdictions remains unprofitable.
The Dniester region, Donbas, and Abkhazia do not rank among the ten cheapest places for Bitcoin mining, as they are all gray areas beyond the control of sovereign governments. Furthermore, the methods by which these regions obtain electricity are not recorded by investigations, which are based on publicly announced electricity prices. If electricity costs are near zero, and the relevant regions are not internationally recognized, such research methods will fail.
Gray Areas
'Shadow territories' Dniester region, Donbas, and Abkhazia (all under Russian 'protection') provide special opportunities for those allied with the Kremlin to engage in Bitcoin mining.
Dniester Region: Utilizing energy from the MGRES power station, which is fueled by natural gas provided for free by Gazprom. A technology park established to attract miners offers electricity at $0.043 per kWh.
Donbas: Has been using electricity from coal-fired power stations since 2021, which normally supplies power to heavy industry. Electricity stolen from the Zaporizhzhia nuclear power plant may also be used. The Department of Labor reports that the Donetsk Metal Plant has a mining center, and at least one other center, both operating under the protection of the Federal Security Service (FSB).
Abkhazia: Since 2015/16, has been using electricity from the Inguri hydropower station bordering Georgia and imported Russian electricity. The cost of electricity is as low as $0.005 per kWh. However, public sources report a sharp decline in mining volumes in Abkhazia and mainland Georgia since 2023.
Dniester Region: A perfect environment for Bitcoin mining
The Dniester region's access to Gazprom's free gas and significant power generation capacity makes it an extremely attractive Bitcoin mining location.
A key factor is the arrangements between Moldova and the Dniester region regarding natural gas supply and electricity generation. Both regions receive gas from Gazprom via pipelines, and the gas in both regions is billed through Gazprom's contract with Moldovagas (with 50% of Moldovagas shares controlled by Gazprom). However, while Moldova pays for the gas, the gas in the Dniester region is nominally added to Moldovagas's debt of about $709 million, which has little prospect of being repaid and is also disputed.
Since Maia Sandu took office as President of Moldova in 2021, the country has reduced its dependence on this energy. However, what has not changed is that the gas in the Dniester region 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 otherwise hostile entities.
This free energy is a subsidy from Moscow, intended to keep the outdated, heavily polluting, and inefficient heavy industries in the Dniester region running, including chemicals, steel, and cement. 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 astonishing gas consumption of the two entities illustrates the scale of this subsidy: the Dniester region (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 the Dniester region is about 16 times that of Moldova (however, this figure is offset by the fact that some of the gas in the Dniester region is used to generate electricity at the MGRES plant and then sold to Moldova). It remains unclear whether this situation will persist until 2025, as Ukraine has refused to renew its gas transit agreement with Gazprom.
Currently, the site provides an almost perfect environment for Bitcoin mining. Given that the MGRES power station has a large power capacity and access to free gas, the motivation for participating in Bitcoin mining is evident. In 2018, the Dniester region passed legislation to provide a clear legal basis for accelerating cryptocurrency mining development.
In 2019, a state-owned mining enterprise area named 'Tehnopark OJSC' gained significant publicity, aiming to attract foreign miners by offering electricity at $0.043 per kWh. This is a highly competitive price; according to research by BestBrokers.com, in 2024, electricity prices in Kazakhstan are $0.073 per kWh, and in the U.S., it is $0.127 per kWh. Although there is currently no reliable data, the fact that the Dniester region obtains 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 kWh (this figure has risen significantly in recent years). Based on these numbers, this means that the electricity cost per Bitcoin in the Dniester region is $36,739, while Bitcoin is approximately $97,000. The corresponding figures for Kazakhstan are $62,371 and $108,509 for the U.S. (this U.S. figure is the national average; miners may operate in states where electricity is cheaper).
However, since 2019, there has been little further reporting, and the website is no longer online, despite having operated until 2022. This does not mean that Bitcoin mining in the Dniester region has stopped, but rather reflects that international miners (other than Russians) have not flocked to Tiraspol as hoped. Therefore, considering wartime conditions and the need for caution, there is no need for publicity.
A report from the Moldovan NGO Anticoruptie indicates that the main mining participants are Goweb International Limited and Tirastel GmbH.
Although Western investors are reportedly involved, the 'investors' are mainly Russians, benefiting from Gazprom-related subsidies for the natural gas supplied to the Dniester region.
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 to purchase cryptocurrency mining equipment, which was shipped to the Dniester region, with funds transferred through Latvia's ABLV Bank. The following month, the U.S. Treasury's Financial Crimes Enforcement Network targeted ABLV for 'institutional 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 Moldovan 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 specialized in the production and marketing of mining equipment.
The company's official website shows 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 natural gas internationally has diminished, and the motivation for the Russian state to repurpose natural gas for Bitcoin mining has only increased.
Ways to use Bitcoin
There is ample reason to believe that Bitcoin mining in the 'shadow state' is operated by private sector participants but runs with the support of the Kremlin. This connection is particularly evident along the Dniester River due to the direct involvement of Igor Chaika. He is nominally the Dniester River representative of the Russian business organization 'Delovaya Rossiya', but it is well known that he is the de facto head of the Federal Security Service in the region.
Chaika is the son of Yuri Chaika, the former Prosecutor General of Russia (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, whom Putin sent to Chechnya. Meanwhile, his other son, Artem Chaika, is a businessman who serves as Kadyrov's advisor on 'humanitarian, social, and economic affairs'—a role that presumably gives 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 then told the Russian newspaper Kommersant that he hopes to continue advancing the Bitcoin project. 'Now there are prerequisites for further advancement.' 'We agree with the head of the Tiraspol administration that once the law comes into effect, the authorities will provide us with the infrastructure for the project. We look forward to their suggestions for locations for creating mining farms.'
(Wired) reported that Chaika 'expressed his readiness to invest 400 million rubles in cryptocurrency mining in the Dniester region.'
According to the sanctions imposed by Switzerland's SECO on Igor Chaika in August 2024, he is responsible for funding the Federal Security Service's destabilizing activities in Moldova. The Swiss sanctions statement claims that he works closely with Dmitry Milyutin, the deputy head of the Federal Security Service responsible for Moldova affairs. Furthermore, Chaika is listed alongside Moldovans (including Ilan Shor and Vladimir Plahotniuc) involved in destabilizing national stability.
'Igor Chaika is a Russian businessman responsible for raising funds for projects aimed at destabilizing the Republic of Moldova on behalf of the Russian Federal Security Service (FSB). He plays the role of Russia's 'treasurer,' channeling funds into FSB assets in the Republic of Moldova to keep the country under Kremlin control...'
Given Chaika's role since 2018 in establishing Russia-Dniester Bitcoin mining cooperation, the resulting Bitcoins are likely to be used to undermine the stability of Moldova.
The use of Bitcoin to support Kremlin subversive actions extends far beyond Moldova. For instance, a loophole in the U.S. allows anonymous political donations below $200. Large sums can be automatically split and electronically transferred in small donations, and cryptocurrencies add a layer of anonymity. For example, in 2020, the Trump campaign received $378 million in this manner, while the Biden campaign raised $406 million. The campaign teams themselves or the Federal Election Commission could not determine the origins of this nearly $800 million in funding.
In 2018, the U.S. Department of Justice charged Netyksho and others, accusing them of being members or accomplices of the GRU (Russian Military Intelligence) 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 transact in various currencies (including dollars), they primarily use Bitcoin to purchase servers, register domain names, and otherwise pay for hacking activities...'
Cryptocurrencies are also effective in evading sanctions and paying for embargoed military equipment. This is especially true when cooperating with partners like India, where banks in these countries are easily subject to secondary sanctions if discovered. In September 2024, the UK (Financial Times) published leaked materials detailing the establishment of a closed trading route between India and Russia to evade sanctions:
Poida outlines a plan in five phases to help Russia use rupees and establish a stable supply of dual-use components. Russia will establish 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 the Shanghai branch of VTB Bank Public Joint Stock Company and the New Delhi branch of the Russian Federal Savings Bank, likely as a warning to the banking sector. These restrictions are expected to increase the attractiveness of Bitcoin as a means of settlement, as it does not expose local banks to risks.
In light of 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.
This also brings multiple threats. These threats include destabilizing neighboring countries, exerting covert influence on Western democratic states, and collaborating with allies like India to facilitate sanctions evasion.
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 significant priority that requires dedicated efforts. This may include: cyber warfare measures; blockchain tracking of newly minted tokens to expose those related to illegal activities in Russia; imposing sanctions on digital asset platforms that facilitate mining; and formulating 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.
