Russian President Vladimir Putin Complains That Crypto Miners Are Causing Power Outages in His Country. Do the Miners Contribute to Involuntary Disarmament?

After Venezuela and Iran, Russia now appears to be adopting this tactic. Recently, Russian President Vladimir Putin stated in a video on economic issues

Russian President Vladimir Putin has recently drawn attention to the impact of unregulated cryptocurrency mining on the country's power grid, highlighting its potential to contribute to rolling blackouts. This statement has sparked varying reactions and raised questions about the role of miners in the broader context of national security and disarmament.

According to Putin, the rapid increase in electricity consumption for crypto mining without proper oversight can lead to power shortages in various regions. The Russian Ministry of Energy estimates that crypto mining accounts for about 16 billion kilowatt-hours per year, which is approximately 1.5 percent of Russia's total power consumption. This would roughly equate to one-tenth of Bitcoin's total consumption globally, which some might find to be an exaggeration.

If Bitcoin mining were indeed causing widespread power shortages in Russia, it could be seen as a positive development from a certain perspective. The electricity consumed by miners would not be used for producing bombs or weapons, potentially contributing to a reduction in the country's overall armament. In this scenario, Bitcoin could be seen as playing a role in promoting peace, perhaps even more effectively than some sanctions.

However, it seems unlikely that a mere 1.5 percent increase in consumption would push Russia's power grids to their limits, leading to rolling blackouts.

In reality, the impact of mining on the electricity grid varies significantly depending on the region. For instance, the North Caucasian republic of Dagestan is known to be a mining hotspot in Russia. Due to low electricity prices and lax oversight, many miners have flocked to the region. However, they often draw power uncontrollably from illegal farms, sometimes even resorting to theft.

Authorities shut down 16 illegal mining farms in Dagestan in 2023 alone. Many residents report how old industrial plants were suddenly reactivated, leading to frequent power outages. About a year ago, a power outage during a heatwave knocked out air conditioners for several days, leading to widespread protests in Dagestan’s capital, Makhachkala.

Meanwhile, power outages are also increasing in other regions of the country, including North Ossetia, Chechnya, Kabardino-Balkaria, Karachay-Cherkessia, Krasnodar, and Rostov. Most of these regions are located in the south of the country, where air conditioners are driving up electricity consumption due to high temperatures.

According to the Moscow Times, one primary reason for the power outages is the aging infrastructure. As is often the case when a country prioritizes war efforts, there are trade-offs. A nuclear power plant is being throttled, maintenance work and disruptions cause parts of the network to fail, sanctions hinder the replacement of Western components, and Ukrainian drone attacks on refineries also have their effect.

Some observers may dismiss Putin’s claim that miners are to blame for the blackouts as "typical Russian lies" or simply deem it "ridiculous." However, it would be an oversimplification to completely disregard his statement.

The clustered concentration of mining farms can consume far more than just 1.5 percent of the available electricity regionally. Some experts, such as a representative from the Russian mining company BitRivet, believe that the state energy agency's 1.5 percent figure is significantly underestimated. They only account for official, corporate farms, ignoring private mining, which likely adds at least another 1.5 percent.

As Bitcoin becomes increasingly important to Russians, the incentive to mine also grows. Combine this with cheap electricity and partially dilapidated grids, and it could reach a tipping point.

So when Putin cites the concerns of regional authorities that Bitcoin mining "could threaten new businesses, residential centers, and social institutions with supply disruptions and delay promising investments and infrastructure projects," it could be a propaganda tactic to shift blame from homemade issues. However, there might also be some truth to it.

Now, the head of state is calling on the Duma to pass federal legislation to standardize the taxation and regulation of miners. Specifically, they plan to introduce special electricity prices for miners.

Interestingly, just a week prior to this statement, the Duma approved a draft law that legalizes mining. The draft, submitted in November 2022, would legalize mining in Russia for the first time, but simultaneously ban the circulation of digital currencies in the country. This move highlights the ongoing contradictions in Russia's crypto policy.

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