Cryptocurrency Mining in the Service of the Russian Economy
Legalization and taxation of crypto mining in the Russian Federation
Recently, there was a story on TV News that a law on regulating cryptocurrency mining in the Russian Federation is being prepared.
Its essence comes down to two main arguments (p. 1-2) and one conclusion (p. 3):
1. Electricity for mining should be sold at commercial prices as for industry, and not at subsidized prices as for the population.
2. From the mining of cryptocurrency, it is necessary to take legal taxes both from the activities of the commercial enterprises themselves (taxes on payroll, etc.), and a tax in the form of a percentage of the generated cryptocurrency.
3. Mining farms should be located where it is beneficial to the country's energy system, and not to the personal benefit of the miner himself.
Energy cost and cryptocurrency price.
The easiest way to find out the price of Bitcoin (see Fig. 1.)
Fig. 1. Bitcoin rate for the previous period.
To mine 1 bitcoin on one computer, you will need a fairly understandable amount of electricity in the amount of 266 thousand kWh (see Fig. 2.)
Fig. 2. The energy basis of Bitcoin mining.
That is, knowing the price of Bitcoin itself and the amount of electricity consumed to produce it, you can estimate the profitability of mining in different conditions based on the cost of electricity, the price of which determines the commercial benefit of mining as such.
We divide the price of bitcoin by the amount of electricity consumed and get the threshold tariff that makes crypto mining commercially profitable.
=5273560/266000 =19.8 rub/kW*h.
It is also necessary to take into account the instability of the Bitcoin exchange rate itself, which was 4-5 times cheaper just a year ago.
So just 1 year ago in 2023, the threshold price of bitcoin mining profitability per kWh of electricity was only
=1200000/266000 =4.5 rub/kW*h.
Additionally, we need to add here the costs of computer hardware and renting premises for mining on an industrial scale, although these are small change compared to the cost of electricity.
Depending on regional electricity prices, the prevalence of mining in the Russian Federation as an independent business changes (see Fig. 3.)
Fig. 3. Electricity tariffs by regions of Russia
So, at subsidized rates of 3 rubles/kWh (as in the distant Moscow region), cryptocurrency mining pays for itself and provides a stable profit.
But at Moscow rates of 6 rubles/kWh, mining last year became either unprofitable or had almost zero profitability.
The most profitable place to mine is where electricity is cheap and plentiful.
Such places with ultra-cheap electricity are located around nuclear power plants and near large hydroelectric power plants in Siberia.
So the electricity tariff in Irkutsk today is only 1.42 rubles/kWh.
In these places, they don’t even carry out gasification of the private sector, since it is more profitable to install electric heating at a price of 1.42 rubles/kWh.
To earn $20-30 per day, miners connect 30 video cards (25.5 kW/hour) or 2 ASICs (6-7 kW/hour). Using air conditioners is not economically feasible. Coolers are more often used to cool equipment.
That is, the amount spent on electricity will be Dsum = 25.5 * 1.42 * 24/86 = 10.1 dollars/day.
So, at a rate of 1.42 rubles kWh, half of the money for mining will be spent on electricity.
And with a more common tariff of 4-5 rubles/kWh, there will be no profit from mining.
It is for this reason that news regularly comes out that somewhere another underground mining farm has been discovered that steals electricity bypassing the meters.
At the same time, in energy-deficient regions of the country, mining is harmful to the energy system, despite the size of the tariff, and therefore it should be strictly regulated at the legislative and permitting level.
Why does the state need cryptocurrency?
Why does the state need cryptocurrency from mining farms?
The answer is quite simple:
The state also needs to finance secret operations, which are paid for with cryptocurrency.
We are now entering a period when we have to move from liberal submission to the West to tough opposition to the West.
For such counteraction, secret operations can be carried out on foreign territory. Preparation of secret operations should be financed only from secret sources, which are cryptocurrency wallets.
The state could buy cryptocurrency, but such an operation itself could be tracked, thereby revealing the secrecy of the operation itself.
So we just need to generate crypto under full government control, exchanging crypto for cheap Russian energy resources in the form of electricity.
Crypto farms in the service of the country's big energy sector
If we have figured out the use of cryptocurrency, then we still need to figure out the operating mode of the farms themselves.
Cryptocurrency farms are powerful consumers of electricity, capable of consuming constant electricity capacity all year round.
Also, these crypto farms can sometimes be slowed down, reducing their power consumption several times in a short time.
That is, a powerful crypto farm can be used as a regulated ballast consumer of electricity with central dispatching of its power, which is extremely useful for smoothing out sharp peaks of consumption in the country's power grids.
I have already written a separate article on the subject of dispatching the consumption saw at generation capacities.
https://habr.com/ru/articles/800317/
Can cryptocurrency replace regular money?
The rosy forecasts about the broad prospects for the mass use of cryptocurrency by ordinary people are an unrealistic fantasy.
There are grounds for such a conclusion, namely:
1. The production and maintenance of crypto currency is an expensive process associated with the constant consumption of expensive electricity and the resource of “crypto farms”.
2. Regular money in non-cash bank accounts is a practically free product (compared to crypto).
3. Any state currency is tied to a certain local economy, which provides the value of this currency. At the same time, crypto currency is not tied to anything real, but only parasitizes on other economies, providing the service of “anonymity” of payment. It is precisely because of this non-systemic nature that crypto currency is very volatile, that is, its rate is highly changeable for random and unpredictable reasons.
The Need for Foreign Currencies for the Russian Economy
Against the backdrop of the conversation about the stability of cryptocurrency, the question of the stability of the state economy in general is also interesting.
For example, you can ask a question about the Russian economy:
Why can’t we provide the entire population with goods of only Russian production?
There are several partial answers to this question, which together give a general, comprehensive answer:
1. As a partial answer, we can say that we are FORCED to buy foreign goods for our domestic consumption, since we ourselves sell something abroad.
2. We are also forced to buy some products abroad that are basically impossible to produce in the Russian Federation: bananas, oranges, pineapples, dates, etc.
3. It is unprofitable for the large economy of the Russian Federation to produce products with high volatility of demand and rapidly aging products. These categories include goods from non-basic consumption segments, namely: rapidly aging electronics (smartphones), fashionable items, luxury items.
A striking example of a basic product is everyone's favorite passenger car.
So in the Russian Federation, only cars from the cheap segment, which are widely used in poor regions, are mass-produced: Lada, UAZ and foreign brands like Renault-Logan with production localized in the Russian Federation.
At the same time, luxury cars are purchased from abroad using convertible currency received from the sale of oil and gas abroad, as well as oil and gas processing products (fertilizers, polymers).
If we do not buy other people's products, we will not be able to benefit from our own resources sold abroad.
At the same time, an attempt to produce a wider range of goods ourselves to replace imports will lead to the economy being overloaded with excess production capacity.
It turns out that within the country we need to have complete self-sufficiency in food and means of food production, but our own passenger car industry must be kept at the level of the minimum basic saturation of mandatory services (police, post office, army, officials).
Cars as a luxury (trips to the country) are no longer a necessary product, which can be easily purchased abroad.
Thus, with a sharp deterioration in life in the country, the refusal of a summer resident to use a foreign car will not in any way affect the stability of the economy in the Russian Federation, but will only cause problems for foreign car manufacturers.
At the same time, the activities of the basic structures on domestic cars will continue in difficult years, supporting as the backbone of the entire connected industrial-resource economy.
Housing and road construction are also considered to be basic industries.
Thus, in a stable economy, the planned wear and tear of roads and housing must be constantly replenished at the same rate by new replacement construction, without stopping work for even a day.
It is for this reason that the construction industry is considered the main driving force of the country's economy.
