MOSCOW, July 17, 2024 — President Vladimir Putin issued a stern warning on Wednesday regarding the unregulated increase in cryptocurrency mining, which he said risks overloading Russia’s electrical grid and causing widespread power outages.
“An uncontrolled increase in electricity consumption for mining cryptocurrencies can lead to power shortages in certain regions,” Putin cautioned senior government officials during a meeting focused on the economy.
The Energy Ministry of Russia estimates that crypto mining consumes an average of 16 billion kilowatt-hours per year, accounting for nearly 1.5% of the country’s total electricity consumption. Putin emphasized that this figure continues to rise, attributing the surge in mining activities to the relatively cheap cost of electricity in Russia and the easy access to necessary equipment.
Despite having restrictive laws on cryptocurrencies, Russia emerged as the world’s second-largest crypto mining country after the United States in 2023. Previously leading nations like China and Kazakhstan have implemented severe restrictions on crypto mining activities in recent years, shifting the global landscape.
Investigative journalists recently identified the North Caucasus republic of Dagestan as the “capital” of crypto mining in Russia. Dagestan has been experiencing lengthy blackouts, mainly due to its aging infrastructure, exacerbated by the power-hungry mining operations.
Putin echoed the concerns of regional authorities, warning that mining farms could leave “new businesses, residential areas and social facilities with supply disruptions, and put on hold promising investment and infrastructure projects.”
In response to these challenges, Putin announced that he had ordered tax and tariff regulations for miners and called for a federal law to address the issue. This regulatory push has gained renewed urgency following sweeping power outages in southern Russia on Tuesday.
In 2020, Putin signed a law that legalized cryptocurrencies as digital financial assets while banning their use for paying for goods and services. By 2023, Russia had established the blockchain-based “Digital Ruble” as a new form of legal tender.
Last week, Russian lawmakers moved to legalize crypto mining while simultaneously banning the circulation of cryptocurrencies within Russia. This legislative move aims to regulate the booming industry while mitigating the risks associated with unregulated mining activities.
The Kremlin’s focus on regulating the crypto mining industry underscores the growing impact of digital currencies on traditional energy infrastructures. The energy-intensive process of mining cryptocurrencies involves solving complex computational problems, which requires substantial amounts of electricity.
Russia’s relatively low electricity costs have made it an attractive destination for crypto miners. However, the unintended consequences of increased energy consumption are becoming more apparent, threatening to destabilize regional power supplies and hinder economic growth.
As the government navigates this complex issue, it faces the challenge of balancing the economic benefits of crypto mining with the need to maintain a stable and reliable energy supply for all sectors of society. The proposed federal law and new regulatory measures are seen as crucial steps in achieving this balance.
Putin’s directive signals a decisive shift towards tighter control of the crypto mining industry in Russia, aiming to prevent further strain on the nation’s power grid and to safeguard its economic stability.