Original author: Neil Barnett, RUSI
Original translation by: 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 becoming increasingly 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 obscure 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 carrying out 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 obscure on-chain tracking; employing 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 provides a degree of protection, as tokens have no history at the time of their first transfer, thus providing no data to investigators.
Mining Bitcoin requires computer processing power. Since the system is decentralized, the designers of Bitcoin provide incentives to those supplying the computing 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 of the reasons the Russian 'shadow territories' are attractive. A study conducted in September 2024 by Nftevening.com indicates that 'the cost of Bitcoin mining in Ireland reaches $321,112, while in Iran, miners only need to pay $1,324, making it over 240 times cheaper.' Even with Bitcoin approaching $100,000, mining Bitcoin in many jurisdictions remains unprofitable.
The Dniester region, Donbas, and Abkhazia do not rank among the ten cheapest regions for Bitcoin mining, as they are all gray areas that sovereign governments cannot control. Furthermore, the methods by which these regions obtain electricity have not been documented by investigations, which rely on nationally published electricity prices. If electricity costs are nearly zero and the relevant regions are not internationally recognized, such research methodologies will fail.
Gray area
The 'shadow territories' of the Dniester region, Donbas, and Abkhazia (all under Russian 'protection') offer special opportunities for those allied with the Kremlin to engage in Bitcoin mining.
Dniester Region: Using the 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 $0.043 per kilowatt-hour.
Donbas: Since 2021, power from coal-fired power stations has been used, which normally would supply power to heavy industries. Electricity stolen from the Zaporizhzhia nuclear power plant may also be used. The Department of Human Resources reports that there is one mining center at the Donetsk Metallurgical Plant, and at least one other, both operating under the protection of the FSB.
Abkhazia: Since 2015/16, it has been using electricity from the Enguri hydroelectric power station bordering Georgia, as well as imported Russian electricity. Electricity costs as low as $0.005 per kilowatt-hour. However, public sources report a sharp decline in mining activity in Abkhazia and mainland Georgia since 2023.
Dniester Region: A perfect environment for Bitcoin mining
The Dniester region has access to Gazprom's free natural gas and substantial electricity generation capacity, making it an attractive location for Bitcoin mining.
A key factor is the arrangement between Moldova and the Dniester 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's shares are controlled by Gazprom). However, while Moldova pays for gas, the gas in the Dniester region is nominally added to Moldovagas's debt of approximately $709 million, which faces uncertain prospects for repayment and is disputed.
Since Maia Sandu assumed the presidency of Moldova in 2021, the country has reduced its dependency on this energy. However, what remains unchanged is that natural 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 the strange interdependence between otherwise hostile entities.
This free energy is a subsidy from Moscow aimed at keeping the outdated, heavily polluted, and inefficient heavy industries of the Dniester region operational, including chemicals, steel, and cement. It also provides very cheap household natural gas, which helps solidify public support for the local regime.
According to information provided by the Moldovan government, the astonishing natural gas consumption from 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 natural gas in the Dniester region is used to generate electricity at the MGRES plant, which is then sold to Moldova). It remains 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 a large power capacity and access to free natural gas, the motivation to participate in Bitcoin mining is evident. In 2018, legislation was passed in the Dniester region to provide a clear legal basis for the accelerated development of cryptocurrency mining.
In 2019, a state-owned mining enterprise zone called 'Tehnopark OJSC' gained significant publicity, 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 research by BestBrokers.com, the electricity price in Kazakhstan in 2024 is $0.073 per kilowatt-hour, while in the United States, it is $0.127 per kilowatt-hour. Although there is currently no reliable data, the fact that the Dniester region receives free natural gas suggests this price might be the cheapest in the world.
According to data from BestBrokers.com, the current electricity consumption per Bitcoin is 854,403 kilowatt-hours (a number that has significantly increased in recent years). Based on this figure, the power cost for each Bitcoin mined in the Dniester region is approximately $36,739, while Bitcoin is around $97,000. The corresponding figures for Kazakhstan are $62,371, and for the U.S. 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, although it operated until 2022. This does not mean that Bitcoin mining in the Dniester region has ceased, 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 publicity.
A report by 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 primarily Russians connected to Gazprom (benefiting from part of the gas subsidies Gazprom provides 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 on crypto mining equipment, shipped to the Dniester region, with funds transferred through Latvia's ABLV Bank. The following month, the U.S. Department of the Treasury'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 $1 billion was stolen from a Moldovan bank.
The report from Anticoruptie stated:
Goweb International Limited is an offshore company managed by a group of businessmen from Russia, 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 sites.
With Russia's invasion of Ukraine in February 2022, Moscow's ability to sell natural 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 are ample reasons to believe that Bitcoin mining in the 'shadow states' is operated with the support of the Kremlin, albeit conducted by private sector participants. In the Dniester region, this connection is particularly evident due to Igor Chaika's direct involvement. He is nominally the Dniester region representative of the Russian business organization 'Delovaya Rossiya,' but it is well known that he is the region's de facto head of the FSB.
Chaika is the son of Yuri Chaika, the former Russian Attorney General (2006-2020), who is closely linked to 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 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 Chisinau reported in 2018 that the region was in the early stages of Bitcoin mining.
Chaika subsequently 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 opinion of the Tiraspol Chief Executive that once the law takes effect, the authorities will provide us with the project's infrastructure. We look forward to their proposals on the location for creating mining sites.'
(Wired) reported that Chaika 'stated he is prepared to invest 400 million rubles in cryptocurrency mining in the Dniester region.'
According to the sanctions imposed by Swiss SECO on Igor Chaika in August 2024, he is responsible for funding destabilizing activities of the FSB in the Republic of Moldova. The Swiss sanction statement noted his close cooperation with Dmitry Milyutin, the FSB Deputy Director responsible for Moldova affairs. Additionally, Chaika is listed on the sanctions list alongside Moldovan individuals involved in undermining national stability, including Ilan Shor and Vladimir Plahotniuc.
Igor Chaika is a Russian businessman responsible for funding projects by the Federal Security Service (FSB) of the Russian Federation aimed at undermining the stability of the Republic of Moldova. He plays the role of 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 in establishing Russian-Dniester region Bitcoin mining cooperation since 2018, the Bitcoins generated are likely used to undermine the stability of Moldova.
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 remain anonymous. Large sums can be automatically split and electronically transferred in small contributions, while cryptocurrency adds a layer of anonymity. For instance, in 2020, the Trump campaign raised $378 million in 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 in funds originated.
In 2018, the U.S. Department of Justice indicted Netyksho and others, accusing them of being members or accomplices of the GRU (Russian Military Intelligence) units 26165 (more commonly known as 'Fancy Bear') and 74455 ('Sandworm'). The indictment claims that the organization 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...
Cryptocurrencies are equally effective in evading sanctions and paying for embargoed military equipment. This is especially true when cooperating with partners like India, where banks may face secondary sanctions if discovered. In September 2024, leaked materials published by the UK (Financial Times) detailed the establishment of an India-Russia 'closed-loop' trading route to evade sanctions.
Poida outlined a five-phase plan to help Russia use rubles and establish a stable supply of dual-use components. Russia will create a 'closed payment system' between Russian and Indian companies that is not subject to Western oversight, 'including the use of digital financial assets'...
In November 2024, the U.S. Department of the Treasury sanctioned four employees of the public joint-stock company VTB Bank's Shanghai branch and the Russian Federation's Savings Bank's New Delhi branch, likely serving as a warning to the banking sector. These restrictions are expected to increase the appeal of Bitcoin as a means of settlement, as it does not expose local banks to risk.
Given this analysis, Bitcoin mining in Russia's 'shadow territories' is an undeniable, profitable, and virtually anonymous way to convert substantial power into money. This money can make closely connected Russians wealthy, enabling them to live affluent lives 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 democratic nations, and cooperating with allies like India to facilitate evasion of sanctions.
As Ukrainian allies continue to work to restrict the Kremlin's funding and resources for its illegal 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 associated with Russian illegal activities; sanctions on digital asset platforms facilitating mining; and policies to cut off cheap energy from the 'shadow territories.' Western restrictions often lag behind Russia's evasion strategies; when it comes to the vulnerabilities of Bitcoin mining, the evidence is evident.
