Written by: Neil Barnett, RUSI
Translated by: Felix, PANews
In a world where the Kremlin is increasingly isolated and focused on foreign influence operations, there are strong motivations 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 becoming prevalent. Since 2018/19, this situation has occurred on a massive scale in Russia's "shadow territories" (the Dniester River region, Donbas, and Abkhazia). Exploiting these legally ambiguous categories can obscure facts and allow for the plunder of Russia's gas and electricity resources. Moreover, typical of post-Soviet Russia, private sector participants engage in clandestine operations.
How to convert cheap energy into anonymous currency
The anonymity of Bitcoin is questioned by cryptocurrency advocates, who point out that Bitcoin is traceable and that 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 hide on-chain tracking; utilizing a dark web system called '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 history when first transferred, thus providing no data to investigators.
To mine, the Bitcoin network requires computer processing power. As the system is decentralized, the designers of Bitcoin provide incentives for those who contribute 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 for Bitcoin mining is the energy required to power these servers, which is one of the reasons 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 pay $1,324, making it more than 240 times cheaper." Even with Bitcoin nearing $100,000, mining in many jurisdictions remains unprofitable.
The Dniester River region, Donbas, and Abkhazia are not among the ten cheapest regions for Bitcoin mining because they are all gray areas that cannot be controlled by sovereign governments. Furthermore, the methods by which these regions obtain electricity have not been recorded by investigations, which rely on state-published electricity prices. If the electricity cost is close to zero, and the relevant areas are not internationally recognized, such research methods will fail.
Gray area
The "shadow territories" of the Dniester River, Donbas, and Abkhazia (all under Russia's "protection") provide special opportunities for Bitcoin mining for those allied with the Kremlin.
Dniester River region: Using energy from the MGRES power station, whose fuel is natural gas provided for free by Gazprom. The technology park established to attract miners offers electricity at $0.043 per kWh.
Donbas: Using electricity from coal-fired power plants since 2021, which normally would supply heavy industry. Electricity stolen from the Zaporizhzhia nuclear power plant may also be used. The human resources department reports that the Donetsk Metallurgical Plant has a mining center, in addition to at least one more, both operating under the protection of the Federal Security Service (FSB).
Abkhazia: Since 2015/16, has used electricity from the Inguri hydroelectric power station bordering Georgia and imported electricity from Russia. The electricity cost is as low as $0.005 per kWh. However, public sources indicate that since 2023, mining volumes in Abkhazia and mainland Georgia have sharply declined.
Dniester River region: A perfect environment for Bitcoin mining
The Dniester River region's access to Gazprom's free gas and significant electricity generation capacity makes it an attractive Bitcoin mining location.
A key factor is the arrangement between Moldova and the Dniester River region regarding gas supply and electricity generation. Both regions receive gas from Gazprom via pipelines, and the gas in both regions is billed through contracts between Gazprom and Moldovagas (50% of Moldovagas is controlled by Gazprom). However, while Moldova pays for gas, the gas in the Dniester River region is nominally added to Moldovagas's debt of about $709 million, which has little prospect of repayment and is also contentious.
Since Maia Sandu took office as President of Moldova in 2021, the country has reduced its dependence on this energy. However, what remains unchanged is that the natural gas along the Dniester River is essentially 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 entities that were originally hostile.
This free energy is a subsidy from Moscow aimed at keeping the outdated, polluting, and inefficient heavy industries in the Dniester River region operational, including chemicals, steel, and cement. It also provides very cheap household gas, helping to consolidate public support for the local regime.
According to information provided by the Moldovan government, the astonishing gas consumption from the two entities illustrates the scale of this subsidy: the Dniester River region (population 300,000) consumes about 2 billion cubic meters per year, while Moldova (population 2.5 million) consumes about 1 billion cubic meters per year. At the delivery point, the per capita gas reception in the Dniester River region is about 16 times that of Moldova (however, this figure is offset by the fact that some of the gas in the Dniester River region is used to generate electricity at MGRES and then sold to Moldova). It is unclear whether this situation will continue until 2025, as Ukraine has refused to renew its gas transit agreement with Gazprom.
Currently, the location provides an almost perfect environment for Bitcoin mining. Given that the MGRES power station has substantial power capacity and access to free gas, the motivation to participate in Bitcoin mining is evident. In 2018, the Dniester River region passed legislation providing a clear legal basis for accelerating the development of cryptocurrency mining.
In 2019, a state-owned mining enterprise area called "Tehnopark OJSC" received significant publicity, aiming to attract foreign miners by offering electricity at $0.043 per kWh. This is a highly competitive price; according to BestBrokers.com research, in 2024 Kazakhstan's electricity price is $0.073 per kWh, and the United States is $0.127 per kWh. Although there is currently no reliable data, the fact that the Dniester River region has access to free gas means that this price may be the cheapest in the world.
According to BestBrokers.com, the current electricity consumption per Bitcoin is 854,403 kWh (a figure that has increased significantly in recent years). Based on this number, the electricity cost for each Bitcoin in the Dniester River region 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. number is the national average; miners may operate in states where electricity is cheaper).
However, since 2019, there have been few further reports, and the website has also gone offline, although it remained operational until 2022. This does not mean that Bitcoin mining in the Dniester River region has ceased, but rather reflects that international miners (excluding Russians) have not flocked to Tiraspol as hoped. Therefore, considering wartime conditions and the need for discretion, there is no necessity for publicity.
Moldova's NGO Anticoruptie reports that the main mining participants are Goweb International Limited and Tirastel GmbH.
Although Western investors are said to be involved, the "investors" are primarily Russians, connected to Gazprom (benefiting from some of the gas subsidies Gazprom provides to the Dniester River region).
Goweb International Limited is an intriguing case. Anticoruptie reports that in January 2018, the British Virgin Islands entity Goweb International Ltd spent $8.7 million on cryptocurrency mining equipment, which was shipped to the Dniester River region, with funds routed through ABLV Bank in Latvia. The following month, the U.S. Treasury'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 a Moldovan bank.
The Anticoruptie report 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 states 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 diminished, and the motivation for the Russian state to divert gas for Bitcoin mining only increased.
How Bitcoin is used
There is ample reason to believe that Bitcoin mining in the "shadow states" is run with the Kremlin's support, although carried out by private sector participants. In the Dniester River region, 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 the Dniester River region, but it is well known that he is the de facto head of the Federal Security Service in the area.
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 an advisor on 'humanitarian, social, and economic affairs' to Kadyrov—presumably a role that allows him ample time to pursue other interests.
The Balkan Investigative Reporting Network in Chisinau reported in 2018, when 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 preconditions for continued progress.' '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 where to create the mining farms.'
(Wired) reported that Chaika "expressed his readiness to invest 400 million rubles in cryptocurrency mining in the Dniester River region."
According to the Swiss SECO sanctions imposed on Igor Chaika in August 2024, he is responsible for funding the FSB's destabilizing activities in Moldova. The Swiss sanctions statement notes that he works closely with Dmitry Milyutin, the deputy director of the FSB responsible for Moldova. Additionally, Chaika is listed among those sanctioned for his role in destabilizing the state, including Moldovans like Ilan Shor and Vladimir Plahotniuc.
"Igor Chaika is a Russian businessman responsible for raising funds for the Federal Security Service's (FSB) projects aimed at undermining the stability of the Republic of Moldova. He acts as a 'treasurer' for Russia, funneling funds into the FSB's assets in the Republic of Moldova to keep the country under Kremlin control..."
Given Chaika's role since 2018 in establishing Russian-Dniester Bitcoin mining cooperation, the Bitcoins generated are likely being 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 political donations under $200 to be made anonymously. Large sums can be automatically split and electronically transferred as 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 itself nor the Federal Election Commission could determine where this nearly $800 million in funding came from.
In 2018, the U.S. Department of Justice indicted Netyksho and others, accusing them of being members or associates of the GRU (Russian military intelligence) units 26165 (more widely known as "Fancy Bear") and 74455 ("Sandworm"). The indictment claims the group was responsible for the DCLeaks and Guccifer 2.0 incidents:
"Although conspirators transact in various currencies (including dollars), they primarily use Bitcoin to purchase servers, register domain names, and otherwise pay for hacking activities..."
Cryptocurrency is equally effective at evading sanctions and paying for embargoed military equipment. This is especially true when collaborating with partners like India, where banks in these countries are easily subject to secondary sanctions if they are found out. In September 2024, the UK (Financial Times) published leaked materials detailing the establishment of an India-Russia "closed-loop" trading route to evade sanctions.
Poida outlined a five-phase plan to assist Russia in using the ruble and establishing a stable supply of dual-use components. Russia will establish a 'closed payment system' between Russian and Indian companies that operates outside Western oversight, 'including the use of digital financial assets'...
In November 2024, the U.S. Treasury sanctioned four employees of the VTB Bank's Shanghai branch and the Sberbank's New Delhi branch, likely as a warning to the banking sector. These restrictions are expected to increase the attractiveness of Bitcoin as a settlement medium since 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 vast amounts of power into money. This money can make closely connected Russians wealthy, allowing them to live lavishly in places like Dubai and Turkey.
It also brings various threats. These threats include undermining the stability of neighboring countries, exerting covert influence on Western democracies, and collaborating with allies like India to facilitate evasion of sanctions.
As Ukrainian allies continue efforts to curb Kremlin funding and resources for its illegal war of aggression in Ukraine, combating this mining activity is a key priority that requires dedicated efforts. This may include: cyber warfare measures; blockchain tracking of newly minted tokens to expose those associated with Russia's illegal activities; sanctions against digital asset platforms that support mining; and policies to cut off cheap energy in the "shadow regions." Western sanctions often lag behind Russia's evasion strategies; when it comes to the vulnerabilities of Bitcoin mining, the evidence is clear.
