Bitcoin Blackouts: Russian Cryptocurrency 'Miners' Minting Millions
While Sucking Abkhazia's Electricity Grid Dry
November 25, 2020
In the side streets and narrow alleys of Abkhazia’s main city, a low
growl and an oily stench are common once again. Thrumming diesel
generators provide power amid rolling blackouts that have infuriated
residents and evoked memories of the postwar chaos nearly three decades
But what’s more infuriating for many Abkhaz is what’s causing the
Or, to be more precise, the cryptocurrency “miners” whose computer
servers are sucking the breakaway Georgian region’s electrical grid dry.
“To be honest, after the war, in my opinion, it was easier,” said one
frustrated Sukhumi resident, Rimma Khashba, 67.
“We have to get used to the schedule that they dictate to us. It’s very
difficult, because it’s constant: The lights are on, the water’s off;
the water’s on, the lights are off. Or the Internet goes off. You can’t
even turn on the washing machine to do the wash,” she told RFE/RL.
Isolated and cut off from much of the world since 2008, Abkhazia’s
economy relies heavily on trade with Russia, with produce heading north
and Russian tourists and intrepid businessmen heading south.
But since 2016, the region of 250,000 people has also been home to a
thriving cryptocurrency industry. Entrepreneurs -- mainly Russian -- are
importing computer parts and taking advantage of Abkhazia’s cheap
electricity rates, inexpensive real estate, and loose regulations from
the de facto government to set up “server farms” and seek profit from
the global explosion in digital currencies.
Unlike real-world currencies, which are printed or minted by
governments, digital currencies, roughly speaking, involve running
sophisticated computer algorithms that basically create -- or “mine” --
the currencies. That requires major amounts of energy-intensive,
expensive computer hardware.
Independent of Abkhazia’s low-regulation environment, there’s another
current benefit: cryptocurrency values are soaring. A single bitcoin is
now worth around $19,000; the next most valuable currency, the Ethereum,
is running nearly $600 a unit.
'Uncontrolled Consumption of Electricity'
Abkhazia, a lush region on the Black Sea coast, is considered by the
vast majority of countries to be part of Georgia.
But it has been outside the control of the government in Tbilisi since a
war in the early 1990s. Its independence claim was recognized by Moscow
in 2008, after Russia invaded Georgia in an armed conflict that erupted
in another breakaway province, South Ossetia. Russia maintains troops in
Abkhazia’s gray legal status has hobbled its development, preventing
outside investments to modernize its economy. That includes its
electrical grid, whose main power source is the Inguri hydroelectric
plant, the largest in the South Caucasus.
Despite the persistent tensions, the Soviet-era facility, which
straddles the line between Abkhazia and the rest of Georgia, provides
electricity to both sides. In the past, about 60 percent of its power
went to government-controlled territory and 40 percent to Abkhazia.
But Abkhazia’s overall demand for electricity has grown sharply in
recent years. By one estimate, around 48 percent of Inguri’s output now
goes to Abkhazia.
Cryptocurrency mining is to blame.
“Since 2016, cryptocurrency mining activities have started to develop in
the republic in a chaotic manner. The lack of legal regulations
governing this activity has led to uncontrolled consumption of
electricity,” Kristina Ozgan, economy minister in the de facto
government, told a cabinet meeting on November 18.
Further concerns loom. Inguri needs to be shut down in February for
badly needed repairs to the Soviet-era equipment. That means Abkhazia
could see even more drastic blackouts.
And adding still another layer of chaos: The electricity deficit has
meant power-grid authorities have had to buy electricity from Russia,
often at rates that are three or four times higher than standard
internal rates within Abkhazia.
Utility engineers have told government officials that there are about
150 “crypto-farms” -- the buildings or warehouses that hold rows and
rows of power-hungry computer equipment -- in the region.
Collectively, they consume about 40 million kilowatt-hours of
electricity per month, though some engineers estimate it could be as
much as 120 million kilowatt-hours, a sizable percentage of the region’s
Most of the investors who have set up the farms are believed to be from
Russia, where authorities this year issued new regulations and oversight
of the industry.
In Abkhazia, authorities have tried in the past to impose some rules and
restrictions. Officially, cryptocurrency mining was banned in December
2018, but loopholes in the law rendered it mostly useless, and few, if
any, punishments or restrictions have been enforced.
Then this year, the industry was legalized again after a new
administration took control following a power struggle among rival
In September, the authorities adopted several measures to try and rein
in the industry. The measures include a 60-day restriction on importing
computer hardware and introducing a permitting system. Moreover, the
measures call for quadrupling electricity rates for cryptocurrency
That didn’t prevent the regional electrical grid operator from imposing
rolling blackouts earlier in November.
“Overloading of the power grid, which is already in a deplorable state,
leads to frequent accidents; it disables transformers and substations,”
a coalition of opposition groups said in a statement this month.
“Household appliances and other electrical appliances burn out due to
sudden and frequent voltage fluctuations in houses. With such a
disorganized approach to the problem, things will only get worse.”
the Sukhumi Drama Theater, a beloved institution in the capital, the
constant blackouts have blown out the pumps that keep rooms from being
soaked by seeping water, theater director Irakli Khintba said. And the
theater’s stage machinery and computers are constantly going off-line.
“In general, it's wonderful, of course,” Khintba said sarcastically,
“due to the fact that someone is making a lot money by mercilessly
consuming a collective resource (electricity), and we, and the entire
state, must incur losses and generally suffer in every possible way.”
“I try to figure out how to make money if I have just four hours of [no
electricity] in my working day. But today there was no electricity at
all. It was on for only five minutes,” Yekaterina Yenik, a local
journalist, told RFE/RL.
“It’s completely obvious that here we need the harshest measures. The
whole world needs to unite and strictly prohibit this activity until we
put things in order in our electrical grid,” said Aleksei Lomia, a
Sukhumi lawyer. “Legal, illegal -- ban it all, because we won’t stand
for it anymore.”
RFE/RL senior correspondent Mike Eckel reported from Prague; Izida
Chania and Anaid Gorgoyan of RFE/RL’s Echo of the Caucasus reported from