The Russian government has banned cryptocurrency mining in many regions due to energy shortages, a consequence of the overheated growth of mining activities.
Despite the legalization of cryptocurrency mining, rising electricity prices and energy supply pressures have forced many localities to tighten or completely ban this activity to ensure sustainable economic and social development.
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Electricity shortages due to cryptocurrency mining have prompted local authorities to call for bans or restrictions.
Electricity prices in Russia have risen sharply, diminishing the attractiveness of the coin mining sector, causing investors to shift their focus to the United States.
The Russian government has legalized cryptocurrency mining, but only about 30% of businesses and individuals have fully registered.
Why does Russia ban cryptocurrency mining in many regions?
President of Russia Vladimir Putin affirmed that the main cause is the explosion of cryptocurrency mining activities that overload the electricity system, leading to energy shortages for industrial and infrastructure projects.
He stated that local authorities continuously report severe electricity shortages, forcing the government to make decisions to restrict or ban cryptocurrency mining to protect overall economic development.
We used to have surplus electricity in some regions, but as coin mining developed too quickly, provinces continuously reported a lack of electricity for development, forcing management decisions regarding mining activities.
Vladimir Putin, President of Russia, Speaking at the forum “Powerful Ideas for a New Era”, 2024
Local government and its impact on the decision to ban
Regional and provincial leaders have requested government intervention to ensure electricity supply for economic development projects and infrastructure construction, as cryptocurrency mining consumes a large amount of electricity compared to traditional industries.
As a result, many regions such as Siberia, North Caucasus, and occupied areas of Ukraine have been subject to temporary or permanent bans on coin mining since 2024. However, some areas have recently relaxed restrictions due to concerns about tax revenue losses and impacts on electricity supply.
How does the increase in electricity prices affect coin mining activities in Russia?
Electricity prices in Russia increased from July 1, 2024, with an increase of about 11.5%-11.6%, according to RBC's report, leading to a surge in operational costs for mining farms.
Modern mining equipment consumes up to 2.5 MW/month, with many facilities operating thousands of machines continuously. The increase in electricity costs surpassing inflation has caused coin mining in Russia to lose its competitive advantage compared to other countries.
Many international investors and clients have shifted to the United States, where the mining market is growing more robustly and has more favorable energy conditions.
Oleg Ogienko, Blockchain & Digital Finance Expert, 2024
Laws and legal framework for cryptocurrency mining in Russia
In August 2024, Russia officially legalized cryptocurrency mining, requiring individuals and organizations to register with the Federal Tax Service and pay taxes as prescribed.
However, only about 30% of participants in mining have completed the registration procedures. The rising electricity prices and bans on mining in many regions have severely impacted many legal mining farms.
To address this, Russia is considering relocating mining farms to energy-rich northern regions while tightening control over illegal mining activities in areas with electricity shortages.
Examples and real data on policy impacts and electricity supply
Criteria Before Limit After Ban/Restriction Notable Localities Electricity Price Increase (%) 3-5 (last year) 11.5 – 11.6 (from 7/2024) Nationwide Number of legally registered mining farms – 30% of businesses and individuals in the Russian Federation Surplus Electricity Status Present in many regions (Siberia, Irkutsk…) Almost nonexistent, bans in many provinces of Siberia, North Caucasus
Frequently Asked Questions
1. Why does Russia ban cryptocurrency mining in many regions? Due to mining activities overloading the electricity supply, affecting the development of local industrial and infrastructure projects. 2. How does the increase in electricity prices affect the mining industry in Russia? Rising electricity costs outpace inflation, making mining uncompetitive, leading many investors to shift to the United States. 3. Has Russia legalized cryptocurrency mining? It has been legal since August 2024, but only 30% of businesses and individuals have registered and complied. 4. Does the Russian government have any solutions for this issue? They are considering relocating mining facilities to energy-rich regions while controlling illegal mining. 5. Are there any regions where the ban has been relaxed? Some areas have relaxed the ban due to concerns about reduced tax income and electricity sources, although restrictions remain widespread.
Source: https://tintucbitcoin.com/putin-giai-thich-lenh-cam-tien-dien-tu/
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