Original author: Neil Barnett, RUSI
Translated by: Lawrence, Mars Finance
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. With the shrinking of the Russian gas market, the phenomenon of converting surplus energy into electricity and then into cryptocurrency is becoming increasingly common. Since 2018/19, this situation has been occurring on a large scale in Russia's 'shadow territories' (the Dniester River region, Donbas, and Abkhazia). Utilizing these legally ambiguous categories can obscure the facts and allow for the plundering of Russia's state gas and electricity resources. Furthermore, as is typical in post-Soviet Russia, private sector participants are engaging 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 cryptocurrency actually offers unprecedented transparency. While this is partially true, there are several ways to obscure traces for malicious purposes. These methods include using mixers like Tornado Cash to conceal on-chain tracking; using an anonymous network system called 'The Onion Router'; or simply purchasing offline Bitcoin wallets from owners at a cash premium. Mining new Bitcoin also provides a degree of protection, as tokens have no historical record when first transferred, thus offering no data to investigators.
To mine, the Bitcoin network requires computational power. Due to the decentralized nature of the system, the designers of Bitcoin provide incentives for those providing computational 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 also one of the reasons the 'shadow territories' of 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 more than 240 times cheaper.' Even if Bitcoin approaches $100,000, mining Bitcoin in many jurisdictions remains unprofitable.
The Dniester River region, Donbas, and Abkhazia do not rank among the 10 cheapest regions for Bitcoin mining, as they are all gray zones beyond the control of sovereign governments. Additionally, the methods for obtaining electricity in these regions are not documented in investigations, which rely on state-published electricity prices. If the cost of electricity is close to zero, and the relevant regions are not internationally recognized, such research methods will fail.
Gray Zone
'Shadow territories' such as the Dniester River region, Donbas, and Abkhazia (all under Russian 'protection') provide special opportunities for those allied with the Kremlin to engage in Bitcoin mining.
Dniester River Region: Using energy from the MGRES power station, which receives free natural gas provided by Gazprom. The technology park established to attract miners offers electricity at $0.043 per kilowatt-hour.
Donbas: Since 2021, it has been using electricity from coal-fired power plants, which under normal circumstances would provide power for heavy industry. Electricity stolen from the Zaporizhzhia Nuclear Power Plant may also be utilized. The Department of Labor reported that there is a mining center at the Donetsk Metallurgical Plant, as well as at least one other, both of which operate under the protection of the FSB.
Abkhazia: Since 2015/16, it has been using electricity from the Inguri Hydropower Station bordering Georgia, as well as imported Russian electricity. The cost of electricity is 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.
Dniester River Region: A Perfect Environment for Bitcoin Mining
The Dniester River region has access to Gazprom's free gas and substantial generation capacity, making it a highly attractive Bitcoin mining location.
A key factor here is the arrangement between mainland 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 Gazprom's contract with Moldovagas (50% of Moldovagas's shares are controlled by Gazprom). However, while Moldova pays for gas, the gas in the Dniester River region is nominally added to Moldovagas's debt of approximately $709 million, which is unlikely to be repaid and is disputed.
Since Maia Sandu took office as President of Moldova in 2021, the country has reduced its reliance on this energy. However, what remains is that the gas in the Dniester River 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, highlighting the bizarre interdependence between formerly hostile entities.
This free energy is a subsidy from Moscow designed to keep the outdated, heavily 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 staggering gas consumption of the two entities highlights the scale of this subsidy: the Dniester River region (population 300,000) consumes approximately 2 billion cubic meters annually, while mainland Moldova (population 2.5 million) consumes about 1 billion cubic meters each year. At the delivery point, the per capita gas receipt 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 for power generation at the MGRES plant and then sold to Moldova). It is unclear whether this situation will persist until 2025, as Ukraine refuses 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 a large power capacity and free natural gas access, the motivation for participating in Bitcoin mining is obvious. In 2018, the Dniester River region passed legislation that provided a clear legal basis for accelerating the development of cryptocurrency mining.
In 2019, a state-owned mining enterprise zone called 'Tehnopark OJSC' received significant publicity, aimed at attracting foreign miners by offering electricity at $0.043 per kilowatt-hour. This is a highly competitive price; according to BestBrokers.com, in 2024, the price of electricity in Kazakhstan is $0.073 per kilowatt-hour, and in the United States, it is $0.127 per kilowatt-hour. Although there are currently no reliable data, the fact that the Dniester River region obtains free natural gas suggests that this price may be the cheapest in the world.
According to data from BestBrokers.com, the current energy consumption per Bitcoin is 854,403 kilowatt-hours (a figure that has increased significantly in recent years). Based on these figures, this means 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. figure represents the national average; miners may operate in states where electricity is cheaper).
However, since 2019, there have been few further reports, and the website is no longer online, although it remained operational until 2022. This does not mean that Bitcoin mining in the Dniester River region has stopped, but rather reflects that international miners (except for Russians) have not flocked to Tiraspol as hoped. Therefore, considering wartime conditions and the need for caution, there is no need for publicity.
Moldova's NGO Anticoruptie reports that the main mining participants are Goweb International Limited and Tirastel GmbH.
Although Western investors are reportedly involved, the 'investors' are primarily Russians linked to Gazprom (benefiting from some of the gas subsidies provided to the Dniester River region by Gazprom).
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 cryptocurrency mining equipment, which was shipped to the banks of the Dniester River, with funds transferred out through ABLV Bank in Latvia. The following month, the U.S. Treasury Department's Financial Crimes Enforcement Network listed 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's banks lost $1 billion.
Anticoruptie's 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 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 weakened, and the state's motivation to repurpose gas for Bitcoin mining only increases.
How Bitcoin is used
There is ample reason to believe that Bitcoin mining in the 'shadow state' is conducted by private sector participants but operates with the support of the Kremlin. This connection is particularly evident in the Dniester River region 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 he is well known to be the de facto head of the FSB in the area.
Chaika is the son of Yuri Chaika, the former Attorney 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, appointed 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 allows him plenty of time to pursue other interests.
The Balkan Investigative Reporting Network in Chișinău reported in 2018 when the region was in the early stages of Bitcoin mining:
'Chaika subsequently told Kommersant that he hopes to continue advancing the Bitcoin project. 'There are now prerequisites to continue advancing.' 'We agree with the opinion of the head of the Tiraspol administration that once the law takes effect, the authorities will provide us with the infrastructure for the project. We look forward to their suggestions on the locations for creating the mining farms.'
(Wired) reported that Chaika 'stated he is prepared to invest 400 million rubles in cryptocurrency mining in the Dniester River region.'
According to the sanctions imposed by Swiss SECO on Igor Chaika in August 2024, he is responsible for funding the destabilization activities of the Russian Federal Security Service (FSB) in Moldova. The Swiss sanctions statement mentions his close cooperation with Dmitry Milyutin, the deputy director of the FSB responsible for Moldova affairs. Additionally, Chaika is listed on the sanctions list alongside Moldovan individuals involved in destabilizing the country, including Ilan Shor and Vladimir Plahotniuc, with citations stating:
'Igor Chaika is a Russian businessman responsible for raising funds for the Russian Federal Security Service (FSB) aimed at destabilizing the Republic of Moldova. He serves as a 'treasury' for Russia, funneling funds to FSB assets in the Republic of Moldova to keep the country under Kremlin control...'
Given Chaika's role in establishing Russia-Dniester River region Bitcoin mining cooperation since 2018, the resulting Bitcoin is likely used to undermine Moldova's stability.
The use of Bitcoin to support Kremlin subversive operations 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, while cryptocurrency adds a layer of anonymity. For example, in 2020, the Trump campaign raised $378 million this way, while the Biden campaign raised $406 million. The campaigns themselves or the Federal Election Commission could not determine where nearly $800 million in funds came from.
In 2018, the U.S. Department of Justice indicted Netyksho and others, accusing them of being members or accomplices of GRU (Russian military intelligence) unit 26165 (more commonly known as 'Fancy Bear') and unit 74455 ('Sandworm'). The indictment claimed 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...
Cryptocurrency is equally 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 can easily face secondary sanctions if found out. In September 2024, the UK (Financial Times) released leaked documents detailing the establishment of an India-Russia 'closed circuit' trading route to evade sanctions:
Poida outlined a five-phase plan to help Russia use the ruble and establish a stable supply of dual-use components. Russia will establish a 'closed payment system' between Russian and Indian companies, free from oversight by Western countries, '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 the attractiveness of Bitcoin as a settlement medium, 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 substantial 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 facilitating evasion of sanctions in cooperation with allies like India.
As Ukraine's allies continue their efforts to limit the Kremlin's funding and resources for its illegal war of aggression in Ukraine, combating this mining activity is an important 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 against digital asset platforms that facilitate mining; and policies to cut off cheap energy in 'shadow regions.' Western restrictions often lag behind Russia's evasion strategies; when it comes to the vulnerabilities of Bitcoin mining, the evidence is clear.
