Transcript 0:00 Russia just leapfrogged China to be on the second-largest country mining Bitcoin, second only to the United States and ahead of China. 0:10 We are getting into the murky world of Bitcoin mining in the dark horse of Bitcoin, Russia. [upbeat music] Welcome back to Bitcoin Season Two. 0:24 We have the author of a report on Russia Bitcoin mining. Uh, Anna, welcome to the show. Thanks for coming. Hi, guys. Thank you for having me. Yeah, thanks for joining, Anna. 0:36 Seasoned crypto reporter, longtime Coindesk journalist, been around the block, reported on a lot of different topics, and we had to tap you for this report. 0:46 Um, native Russian, she was perfect for sourcing information for this, and we're really excited, uh, to release this. 0:54 When this pod goes out, that is on Wednesday of this week, the report will already be out, so if y'all want to follow along, if you're on audio, head to blockspace.media. 1:02 You can download the report, uh, on our website, or if you're on video on YouTube or Spotify, you can also follow along here 'cause we'll be tracking the report as we go through this. 1:13 So Anna, to set the stage, can you give us a high-level overview of Russia's Bitcoin mining industry? 1:19 Because I think as per our conversation before we started recording and some of Charlie's notes, this is a very opaque sector of the Bitcoin mining industry. 1:29 Most people in the West have no idea what's going on in Russia, and they might not even know that there is a huge mining hub in Russia, the second-largest in the world. 1:37 But what's going on with the mining industry over there? Well, so there is a bunch of, uh, big, quite large mining firms in Russia. 1:47 Um, most of them take advantage of, um, Siberia's cold climate and relatively cheap electricity. Uh, there is a bunch of, uh, mining venues near the, um, hydropower sit-- hydropower plants. 2:04 Um, and, uh, there are some, there are some household names like Bitriver, which was sanctioned several years ago, uh, and, uh, other more, uh, kind of newer mining giants that emerged, uh, in the recent years. 2:23 Uh, and they, they use a, they use a mix of, um, power sources. I guess the most kind of, um, the most promising one is hydropower. 2:36 Uh, recently the, um, flare gas and the natural gas became more of a thing for miners. 2:45 Um, yeah, so that's, that's the preferable sources 'cause, um, plugging into the electric grid is still kind of expensive in many places. 2:56 And Russia has, um, really dramatically increased the amount of Bitcoin mining inside the country over the past three years, and it's coincided with China kicking out a lot of Bitcoin miners. 3:10 Can you tell us a bit about the past three years of, of mining growth inside Russia during this time? 3:17 Well, first of all, I think it's quite hard to measure the actual amount of mining in Russia and in China, I would assume, even though I'm not an expert in, in Chinese mining. Uh, but it kind of seems like 3:35 in, in Russia, definitely there is a number of mining farms that do not talk about themselves publicly, do not report themselves, don't want to be known, and so we kind of do not include them in, in, in the overall equation, but they're there. 3:54 Um, I wouldn't be surprised if, uh, the situation is 4:00 similar in China, and we just don't, we, we just don't account for some of its mining power when we, when we rank countries or, or we see who, who's ex-- you know, who, who, who's exiting, who's moving, and so on. 4:17 Um, so, so yeah, I think since, since the first big farm started, uh, appearing in Russia, um, around two thousand sixteen, seventeen maybe, um, it's, it's, it's been an uptrend. 4:35 And on the way, I think more traditional, um, 4:42 traditional businesses, uh, the, uh, energy companies, most of all, joined the party, and most of them do not officially talk about them, officially report about that. It's just people talk about that. 4:59 And allegedly, oil and gas companies are trying to mine on the flare gas. Um, it's, it's either pilot projects, um, or something pretty operational at this point. Um, 5:17 but again, none of, none, none of that is, like, openly public. They don't brag about this on the conferences. 5:26 W-we can see what's going on on the surface, and, uh, we, we can see the players that want to advertise themselves to gain clients. 5:34 But I think big-- I think it was fair to say the, the big parts of that iceberg are, is underwater. Yeah, and a few notes on that. So we have Hashrate Index's global heat map up here from Luxur. 5:48 We reference it in the report. I pulled it up earlier when Anna was talking about how the mining industry has taken off in Russia over recent years. And to her point, there's no way to accurately pinpoint this figure. 6:01 Hashrate Index has it at-Russia having 15%, almost 16% of the global network hash rate as of the beginning of Q4, 2025. That's roughly 160 exahashes versus China's 14%, 145, and the United States' 38% at 389 exahashes. 6:18 The way they derive this is it's kind of cobbled together from Luxor business data, public filings from a lot of the miners who are operating in the United States and elsewhere around the world, and then from that data, you can kind of build-- You can back out some of the other countries based on what you know about private miners that kind of like Anna's saying, some of this data is inside a baseball within Bitcoin mining world, but it's not known to the outside world. 6:46 That being said, to her point, this is-- should be treated as a rough estimate rather than pure fact, because there's no way to know. 6:54 And it conflicts with some of the other stuff we've seen from Cambridge, because Cambridge, uh, University has their own hash rate map, and what they do is they take a, uh-- they take data from mining pools, and then they, uh, aggregate it, and then they assign, you know, a waiting for each country accordingly. 7:09 This has holes in it because you're actually taking mining pool dashboard data, which is the IP address of the person logging into the account, versus where the actual rigs are. 7:18 So I could be running rigs in Texas, but are based in London, and they would r- we would, you know, it would have my hash rate, however much that is, as coming out of the UK. 7:29 So all that being said, trying to triangulate hash rate around the world is really tricky. One last thing to note, uh, per your point about making it more difficult, the big actors don't really wanna talk much. 7:39 You mentioned Bitriver. Bitriver was front and center in some negative press in the mining world in 2022 when the Ukraine-Russia war broke out and the US and Europe sanctioned Russia. 7:52 Bitriver is a Russian company, but they hosted machines for Western clients, a lot of US clients, through some, um, you know, hosting marketplaces in the US, and it was really attractive 'cause the power was really cheap, but the trade-off was people who didn't wanna take that said, "You don't know what could happen in Russia." 8:11 There are geopolitical tensions on-- I mean, you know, there's been fighting in the Donbas since what, 2014, 2016. Um, so- 2014. Yeah, 2014. 8:20 So you, you never know what could happen, and the, [chuckles] you know, the worst happened for some of those miners. Their s- their rigs were basically seized by Bitriver because they were sanctioned. 8:28 They didn't get them back. Um, so you mentioned Bitriver, Anna. Who are some of the other primary actors who are known in the Russian mining market that you cover in the report? 8:39 Uh, well, some other big names, um, in, now in the industry are Intellion, um, Sibmine, Prominer. 8:52 Um, I don't know how, how much these names are known outside of Russia. Um, they're quite, they're quite big inside. Uh, there is also Mining Cluster, CryptoReactor. 9:06 All of these are kind of the biggest miners in Russia. And, and a lot of these guys operate in Siberia, correct? Um, and- Not only- Well, like, uh- But, but yes. 9:20 And, uh, Siberia, or at least, uh, Irkutsk, I'm probably not pronouncing that correctly- Irkutsk, yes... um, was impacted by this mining ban that Russia rolled out, which I think mining ban is maybe a misnomer. 9:34 Um, there, there, there-- It's a ban in some places, but it's quite complicated because it's a region by region thing, and some places have a full-on ban for, for many years, others have a re- a seasonal ban. 9:46 And, uh, Siberia and Irkutsk region specifically was, was impacted by this pretty heavily. Can you break down that ban and exactly why the government instituted it and which mining regions are most impacted? 9:59 Well, because, uh, mining became, uh, quite popular at some point, and the-there was also a bunch of illegal mining when people were, um, plugging into the, um, electric grid without 10:16 having necessarily, uh, the, the permissions, the, the, the technical permissions. 10:22 And, uh, at, at some point, there was the, the-- a number of reports about, uh, electrical grids unplugging, uh, finding illegal miners, uh, and unplugging them. Uh, and some regions struggle with, uh... 10:38 Well, not-- They, they, they don't really struggle, but they have, uh, a more tight situation with, uh, um, access to electricity. 10:48 So they, they picked some regions where, um, you know, they, they didn't want additional s- additional strain on the grid, and, um, basically either banned mining, uh, altogether or said that in the, in, in the time of, um, for example, when it's, uh, when it's colder and you need to, um, you need to use energy resources to, uh, you know, to, to keep the houses warm and, uh, to, to keep the industry going, you cannot mine. 11:27 Yeah, and this is-- Uh, sorry, sorry, just one thing to note. This is specifically, you know, Sib- why Siberia has been targeted here. Um, and it's interesting 'cause it's the inverse of what we see in the US, right? 11:39 Where in the summertime in places like Texas, when the grid needs extra electrons for AC, for refrigeration, keeping things cool when it gets really hot, you see miners curtail and hash rate dips. 11:53 And in Russia, we have the inverse, where you need those electrons for heating, you need the natural gas for heating, you need to make sure [chuckles] that you're gonna survive that brutal winter. 12:01 And we, uh, when I was at Luxor, we wrote about it a little bit, that you're starting to see a kind of-A bifurcated seasonality between the two hemispheres of influence within Bitcoin mining, where in the United States in the summer months you'll see curtailing because of some of those extreme heat events and then in Russia you will see curtailing in the winter because of these new restrictions. 12:21 And one other thing to note that I found interesting when I did a pod on mining in Russia way back b- when the ban was being introduced, was that a lot of, um, re- a lot of, uh, retail miners, a l- uh, residents would mine with a subsidized rate from the government. 12:38 And so that is, as I understand now, completely off the table because that was leading to some pretty, uh, pretty serious grid instability in certain regions. 12:46 Uh, but sorry, one last thing to note, Charlie, before you hop in. I've got the map up here for people who are on, uh, on video. 12:53 As you can see, Irkutsk is over here, and it's got a, a ban, full ban in the south and then a seasonal ban for those winter months like a- Anna mentioned, um, for the rest of the year. 13:05 And, and also these other two regions, I'm gonna butcher this, Anna. Maybe you should just say them. [laughs] Buryatia and Zabaykalsky- Yep... Krai. Yeah. So th- th- those are, uh, two who have the seasonal ban. 13:17 They're kind of the blueprint for that. And then there are some, uh, regions over here and the caucuses that have a full ban, uh, through March 15th, 2031. Sorry. With all that context, Charlie, hop in. Yeah. 13:31 So Anna, um, I'm interested in who owns these mining companies. 13:38 Maybe it's not clear, but, you know, I as a Westerner understand that, uh, the Russian economy and, and political power is held, uh, significantly among the oligarchs, particularly heavy industry and energy. 13:53 Um, do we have any indication that oligarchs are participating or directly involved in these mining companies, um, or to what extent do we think that they have interest in this business? 14:08 Um, well, I would say that, uh, the owners and beneficiaries of the mining companies that, um, that were listed in the report are not, are, are not on the list of Russian oligarchs. 14:25 However, uh, there is, uh, there is a certain overlap, uh, with interests of, of some of the, uh, most, uh, of some of the richest Russians with mining. Um, Bitriver is probably, um, 14:43 the, um, kind of the, the most known example of that. Bitriver, uh, has been-- Bitriver has had this, uh, long-running, uh, partnership with, uh, EN+ energy company, uh, which, um, 15:00 which is connected to, uh, Oleg Deripaska, uh, a Russian oligarch, and at some point they started a common mining business together. 15:10 So EN+ was not just providing power for the, for the mining farms, but they also owned, uh, the mining equipment together. However, that resulted in a, uh, bitter breakup. They end up in, in court. Um, 15:28 honestly, I haven't heard the news of how that, that, how that ended or i- if, if, if they, uh, ended any resolu-- i- if they ended up having any resolution. Um, [keyboard clicking] actually, let me see that right now. 15:45 [keyboard clicking] Uh, but, um, there was, um, there was a, there was a court process, there was eq-equipment arrested, and I'm not sure... I'm, I'm, I'm not sure if, uh, they, 16:02 if they will be able to, 'cause if, if Bitriver will be able to exist completely apart from EN+ and independently from it, uh, but, um, that, that big partnership was under question, uh, earlier this year. 16:20 Um, my colleagues from Novaya Gazeta, uh, Europe, they did, uh, they did some pretty interesting investigation about the connections between the Russian elites and the biggest, um, the biggest mining names. 16:37 Uh, and they found the interests of a bunch of Russian parliament members, uh, who all that is not like direct connections, but some tangential connections and interest overlap and, um, 16:53 you know, joint ventures who are somehow involved, who are around the mining, the mining farms. 17:01 But there is quite an interesting group of, uh, influential, uh, parliament members, uh, mostly, mostly actually parliament members and, uh, two of, uh, Vladimir Putin's, uh, friends. 17:14 [laughs] Which is- That's incredible. Yeah. Well, that's pretty interesting to me because, um, I- I'm curious, like, what do you-- why do you think they're interested? 17:22 Obviously, it's, you know, a heavy industry in a high-growth sector, Bitcoin mining data centers, but then there also, you know, post, um, the Ukraine-Russia conflict, uh, we saw a lot of the Western nations, uh, seize or, uh, make it very difficult to, like, take assets outside of Russia for the, the larger influencers and the elites. 17:50 Um, and Bitcoin is kind of, uh, poised as this extra national currency, maybe like a gold. 17:57 Do you think that's at all a reason why they're, they may be interested in this, or is that, um, or i- maybe is that just a side narrative that isn't a, a big deal? I have something to tack on to that- Yeah... 18:09 to add a, a leading question onto the leading question. 18:12 [laughs] So per Charlie's note-The United States government sanctioned Russian bank accounts, and they, you know, uh, they barred them from liquidating treasuries or trading them, right? 18:24 So, uh, this was a huge wake-up call, I think, for a lot of the world, Charlie, and I covered it recently on a Bitcoin Season two writers room. 18:31 It's part of why gold's running up right now, the Chinese central bank's buying it, other central banks and, and private banks are buying it because they're worried that the collateral that they have with USTs can be frozen in an instant, and, and it can. 18:44 Uh, the other-- So that's one equation. The other one that I find interesting, 18:50 after the Ukraine war, when the sanctions impacted the Russian oil and gas market, when I was in Hong Kong for the World Digital Mining Summit in twenty twenty-three, I heard from some Russian Bitcoin miners and, uh, s- hardware and software and services guys that Russian oligarchs and some politicians were getting interested in Bitcoin mining 'cause it was a way for them to monetize natural gas that they could no longer sell to the Western market, and that they had no hope of consuming on, onshore. 19:17 I'm not sure how much of that is true. Uh, that was coming from Russian miners. This also coincided when I heard of Ru-- u-of ASIC sales increasing to Russia as well. 19:27 This is when Bitmain did about half of its volume, or some of the brokers in Bitmain's, uh, orbit, I should say, did, like, half of their volume to Russia in that year. 19:35 That's what I overheard in some, you know, elevator conversations. So all that being said, how much does the Ukraine war and the knock-on effects negatively or positively impact Russia's Bitcoin mining industry? 19:47 Well, I honestly, I think it's a very big question, and it would be very hard to address it, like, uh, in a, in a, in a, in a accurate way. But one, um, Russian, um, 20:02 Russian energy export is, is, is still on, even though, uh, like the, the European export fell significantly, but, but it's, it's, it, it's still-- like Europe is still buying Russian gas too. 20:18 Uh, there is, there, there is no like complete ban. 20:21 There is, there is a price cap, uh, there, there are different restrictions, but the trade is still going on, and also some of the export was redirected to Asia, to India most-mostly. 20:35 Uh, and, uh, so Russia-- Russian companies, uh, are still able to export oil and gas. Now they-- it is probably harder for them. 20:47 The money flow is probably not as smooth as it used to be, but it's still going. So it's like we cannot say that that export was killed by, by the sanctions and the war. 21:02 Um, I heard from some people that, uh, you know, that there was, there wa-there was some amount of natural gas that was kind of, um, b-because the export was somehow curtailed. 21:17 It w- it was kind of freed for the in-in-inside the country consumption and can be used for mining, but, um, some people say that th-that's not the case either. 21:29 Um, so it's, it's, it's hard to say how, you know, how, how the actual trade restrictions impacted mining. But I think for sure, um, like the moral effect was that, um, 21:46 you, you, in the, in the context of Russia not being a, um, a good trade partner, you know, a, a favorable trade partner anymore on, on the, on the global arena, 22:00 uh, mining is, is kind of a self-sufficient way of generating, of generating profit, and at the same time, it's very hard to... I-it's, it's, it's, it's really very hard to track, right? 22:15 Um, even you know where this mining farm is, but how do you know where its Bitcoin is, right? 22:24 Even if they have to, um, register or publicly declare that they're mining, that, that, that they're mining crypto, like I would think in the-- on a big scale, it's quite easy to still 22:40 hide, hide, you know, to, to cover tracks and, uh, to not show where your Bitcoin is going. 22:47 So I just, I just think that, uh, Bitcoin was seen-- Bit-Bitcoin has been seen in Russia as a pretty profitable business before the, before the s- the sanctions. 22:57 But with the sanction, it kind of gained more popularity as like you just, you, you're not depending on, um, you're just depending on your energy resources and on, on your ability to import the, the equipment, and you can do it just autonomously wherever you have your energy available. 23:23 Yeah, you brought up, uh, importing equipment, which is another interesting dynamic here. In the report, um, you talk about how a lot of the equipment, the mining rigs, ASICs, we might call them, 23:38 uh, are being imported in kind of a gray market. Um, can you explain what that looks like and why that phenomenon is happening? Well, I think that phenomenon is happening, um, in, in the context of overall, 23:57 uh, you know, export fee optimization, uh, that, that some people do. 24:04 Um, it's, it's hard to-- again, it's hard to gauge the, the actual size of the gray market, but according to, uh, some people I spoke to, some people who spoke publicly about that, um, up to seventy percent of the mining equipment is, um-Is imported, uh, into Russia, uh, non-officially, which, uh, in most cases mean that, um, it's not declared as what it actually is. 24:31 On the border, they declare it as some other kind of equipment, as some cheaper stuff, and, and so they manage-- they, th-they can pay lower, lower customs fees, and as a result, this equipment does not get into the official import statistics as ASICs. 24:52 So I'm interested again in, like, the natural gas mining, which, uh, you say, uh, could be like we might call, call it off grid or using straight natural gas. 25:02 I'm curious, uh, what extent is that happening, and, uh, do you think that's a growing industry? And I'm also interested in how miners are building their own power. 25:14 So I th- So I think the most interesting trend, uh, regarding the natural gas mining was, um, using all the flare gas, um, which is abundant within the Russian oil and gas industry. 25:31 And, um, and so now, uh, people are increasingly interested in building their own power generat- power-generating capacity using the, using the flare gas. 25:44 So, um, uh, uh, so part with energy companies try to build their own generators using the flare gas. 25:54 That kind of a thing recently, even though, um, many people I have been complaining that it's actually a very tricky operation to organize. 26:05 I, I think the flare ga- flare gas power generation is, is a pretty unorthodox thing globally, so there are some technical challenges, uh, regarding that. 26:17 And, um, what, what I've been told, it's, it's, it's technically tricky, and it's very expensive. So, um, the-- this kind of operation would pay back in, like, five years, seven years. 26:31 You, you need to have a really long, long-term plan for this. So apologies, Anna had to drop for technical issues, so we're gonna just wrap this one up. 26:41 Uh, one of the themes recurring in this episode, Charlie, was there's this kind of gray area for Russian Bitcoin mining, whether it's Russian miners not declaring ASICs at the border, or it's Russian miners, you know, building their own power stations, maybe not setting things up totally, uh, at par with government regulations. 27:02 It, it goes even as far as the fact that they don't have cryptocurrency exchanges in Russia. 27:06 A-Anna covers in the report, uh, so there's no actual ruble exchange rate for Bitcoin, uh, and she quotes here, "The government has made some steps towards legalization of this industry but hasn't provided enough tools for that." 27:18 So, like, it exists in this limbo, and to me, that highlights a key difference between the United States Bitcoin mining and cryptocurrency industry, which is at this point, post-Bitcoin ETF, all these public Bitcoin miners, is an incredibly buttoned-up and heavily regulated industry. 27:34 It, it seems like Bitcoin mining is bifurcated, um, kind of across hemispheres between a, you know, a gray area, uh, type market where you have China and Russia. 27:47 It's illegal in Russia, but for a long time, m- uh, people were mining under, uh, board. They were using subsidized electricity rates. Uh, the mi-- the, uh, government ended up having to ban a bunch of those practices. 27:59 And in China, it's still going on. We don't know how much, but it, it's, it's with people who have close connections with the government on a provincial or federal level. 28:07 All that saying, uh, you know, I think the big takeaway for me with this report and from this pod is just there's still so much of the mining industry that is in the shadows, and people don't have any idea what's going on outside of the US's borders, at least for Western audiences. 28:24 Yeah. It's a tale of two countries here, where the US is all buttoned up, white hat mining, Russia, gray hat mining. Russia has a lot more in common with China during the twenty tens than it does the US today. 28:38 Thanks so much. Make sure to hit the report. The link to that report's in the show description. It's one of the first of its kind. There's not a lot of good primary research out there. 28:47 We think right now when you're listening to this, we probably have some of the best. Thanks a ton. Hit up Blockspace, Bitcoin Season Two. See you all next week. 28:56 [outro music]
