Original Title: The Other Bitcoin Boom: Crypto Mining in Russia's Shadow Territories
Original Author: Neil Barnett, RUSI
Original Compilation: 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 gradually gaining popularity. Since 2018/19, this has occurred on a large scale in Russia's 'shadow territories' (Transnistria, Donbas, and Abkhazia). Utilizing these legally ambiguous categories can obscure the facts and allow for the plundering of Russia's gas and electricity resources. Moreover, as is typical in post-Soviet Russia, secret operations are conducted by private sector participants.
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 tracks for nefarious purposes. These methods include using mixers like Tornado Cash to obscure on-chain tracking; utilizing the dark web system known as 'The Onion Router'; or simply purchasing offline Bitcoin wallets from owners at a cash premium. Mining new Bitcoins also offers 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. Since the system is decentralized, the designers of Bitcoin provide incentives to those who supply the 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 tokens.
The key cost variable for 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 indicated that 'the cost of Bitcoin mining in Ireland is $321,112, while in Iran, miners only need to pay $1,324, making it over 240 times cheaper.' Even if Bitcoin approaches $100,000, mining Bitcoin in many jurisdictions remains unprofitable.
Transnistria, Donbas, and Abkhazia are not among the top 10 cheapest regions for Bitcoin mining, as they are all gray zones that sovereign governments cannot control. Moreover, the methods these regions use to obtain electricity have not been recorded by investigations based on the nationally published electricity prices. If electricity costs are close to zero and the relevant areas are not internationally recognized, such research methods will fail.
Gray Zone
The 'shadow territories' of Transnistria, Donbas, and Abkhazia (all under Russia's 'protection') provide unique opportunities for Bitcoin mining for those allied with the Kremlin.
Transnistria: Utilizing energy from the MGRES power station, which is fueled by natural gas provided for free by Gazprom. The technology park established to attract miners offers electricity at a price of $0.043 per kilowatt-hour.
Donbas: Since 2021, it has been using electricity from coal-fired power stations, which normally would power heavy industry. Electricity stolen from the Zaporizhzhia nuclear power plant may also be used. The Ministry of Human Resources reports that there is a mining center at the Donetsk Metallurgical Plant, as well as at least one other, both operating under the protection of the Federal Security Service (FSB).
Abkhazia: Since 2015/16, it has been using electricity from the Enguri hydroelectric power station bordering Georgia and imported Russian electricity. The electricity cost is as low as $0.005 per kilowatt-hour. However, publicly available reports indicate that since 2023, mining volumes in Abkhazia and mainland Georgia have sharply declined.
Transnistria: A Perfect Environment for Bitcoin Mining
Transnistria can access Gazprom's free natural gas and substantial power generation capacity, making it a highly attractive location for Bitcoin mining.
A key factor in this is the arrangement regarding natural gas supply and power generation between mainland Moldova and Transnistria. Both regions receive gas from Gazprom via pipelines, and the gas for both regions is billed through Gazprom's contract with Moldovagas (with 50% of Moldovagas shares controlled by Gazprom). However, while Moldova pays for its gas, the gas in Transnistria is nominally added to Moldovagas' debt of about $709 million, which is unlikely to be repaid and is contentious.
Since Maia Sandu took office as President of Moldova in 2021, the country has reduced its reliance on this energy. However, what has not changed is that natural 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 the strange interdependence between these formerly hostile entities.
This free energy is a subsidy from Moscow aimed at keeping Transnistria's outdated, heavily polluting, and inefficient heavy industry running, which includes chemicals, steel, and cement. It also provides very cheap household natural gas, helping to consolidate public support for the local regime.
According to information provided by the Moldovan government, the scale of this subsidy can be seen from the astonishing natural gas consumption of two entities: the Transnistria region (with a population of 300,000) consumes about 2 billion cubic meters per year, while mainland Moldova (with a population of 2.5 million) consumes about 1 billion cubic meters per year. At the delivery point, the per capita natural gas reception in Transnistria is about 16 times that of Moldova (however, this figure is offset by the fact that some natural gas in Transnistria is used for electricity generation at the MGRES plant, which is then sold to Moldova). It is unclear whether this situation will persist until 2025, as Ukraine has refused to renew the 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 natural gas, the motivation to participate in Bitcoin mining is obvious. In 2018, the Transnistrian region passed legislation that provided a clear legal basis for accelerating the development of cryptocurrency mining.
In 2019, a state-owned mining enterprise district named 'Tehnopark OJSC' received significant promotion, aiming to attract foreign miners by offering electricity at a price of $0.043 per kilowatt-hour. This is a highly competitive price; according to BestBrokers.com research, in 2024, the electricity price in Kazakhstan is $0.073 per kilowatt-hour, and in the United States, it is $0.127 per kilowatt-hour. While there is currently no reliable data, the fact that Transnistria obtains free natural gas suggests that this price might 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 sharply 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 are $108,509 (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, even though it continued to operate until 2022. This does not mean that Bitcoin mining in Transnistria has ceased, but rather reflects that international miners (excluding Russians) did not flock to Tiraspol as hoped. Therefore, considering wartime conditions and the need for caution, there is no need for publicity.
Moldovan NGO Anticoruptie reports 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 connected to Gazprom (benefiting from a portion of the natural 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 on crypto mining equipment, which was shipped to Transnistria, with funds transferred out via ABLV Bank in Latvia. The following month, the U.S. Treasury's Financial Crimes Enforcement Network listed ABLV as a target of investigation 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 a Moldovan bank.
The report from Anticoruptie states:
'Goweb International Limited is an offshore company managed by a group of Russian businessmen led by Nikita Morozov, specializing 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.
As Moscow's ability to sell natural gas internationally weakened following its invasion of Ukraine in February 2022, the motivation for the Russian state to repurpose natural gas for Bitcoin mining only increased.
How Bitcoin is Used
There is ample reason to believe that Bitcoin mining in the 'shadow state' is operated with the support of the Kremlin, even though it is conducted by private sector participants. In Transnistria, this connection is particularly evident due to the direct involvement of Igor Chaika. He is nominally the Transnistria 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, who was sent by Putin to Chechnya. Meanwhile, his other son, Artem Chaika, is a businessman serving 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, when the region was at the early stages of Bitcoin mining:
'Chaika subsequently told the Russian newspaper (Kommersant) that he hoped to continue advancing the Bitcoin program. 'Now there are prerequisites for continuing.' 'We agree with the views of 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 on the locations for creating mining farms.'
(Wired) reported that Chaika 'stated he was prepared to invest 400 million rubles in cryptocurrency mining in Transnistria.'
According to the sanctions imposed on Igor Chaika by Switzerland's SECO in August 2024, he is responsible for funding the Federal Security Service's (FSB) destabilizing activities in mainland Moldova. The Swiss sanction statement notes his close collaboration with Dmitry Milyutin, the FSB deputy director responsible for Moldovan affairs. Additionally, Chaika is listed on the sanctions list alongside Moldovan individuals involved in destabilizing the state, including Ilan Shor and Vladimir Plahotniuc.
'Igor Chaika is a Russian businessman responsible for raising funds for the Federal Security Service (FSB) projects aimed at undermining the stability of the Republic of Moldova. He plays the role of Russia's 'treasurer', channeling funds into the FSB's assets in the Republic of Moldova to bring the country under Kremlin control…'
Given Chaika's role in establishing Russian-Transnistrian Bitcoin mining cooperation since 2018, the resulting Bitcoins are likely to be used to undermine Moldova's stability.
The use of Bitcoin to support Kremlin subversive activities extends far beyond Moldova. For instance, a loophole in the U.S. allows anonymous political donations under $200. Large sums can be automatically split and transferred electronically in small donations, with cryptocurrency adding a layer of anonymity. For example, in 2020, the Trump campaign raised $378 million this way, while the Biden campaign raised $406 million. Neither the campaign teams nor the Federal Election Commission could determine where this nearly $800 million came from.
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) units 26165 (better known as 'Fancy Bear') and 74455 ('Sandworm'). The indictment claimed the organization was responsible for the DCLeaks and Guccifer 2.0 incidents:
'Although the conspirators transact in multiple currencies (including dollars), they primarily use Bitcoin to purchase servers, register domain names, and otherwise pay for hacker activity…
Cryptocurrencies are equally effective in evading sanctions and paying for embargoed military equipment. This is especially true when collaborating with partners like India, where banks are easily subject to secondary sanctions if discovered. In September 2024, the UK (Financial Times) published leaked materials detailing the establishment of an India-Russia 'closed' trading route to evade sanctions:
Poida outlined a plan divided into five phases to help Russia use the ruble 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 the Shanghai branch of VTB Bank Public Joint Stock Company and the New Delhi branch of Sberbank of Russia, likely as a warning to the banking sector. These restrictions are expected to increase Bitcoin's attractiveness as a settlement method, as it does not expose local banks to risk.
In light of this analysis, conducting Bitcoin mining in Russia's 'shadow regions' is an undeniable, profitable, and effectively anonymous way to convert substantial power into money. This money can enrich closely connected Russians, 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 democratic nations, 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 significant priority that requires dedicated efforts. This may include: cyber warfare measures; blockchain tracing of newly minted tokens to expose those associated with illegal Russian activities; sanctions on digital asset platforms promoting 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.
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