Armenia aims to position itself as a Bitcoin mining center
At the end of August, a digital platform called ECOS Free Economic Zone delivered good news from a country that rarely sparkles on the global crypto map – Armenia. ECOS reported adding 60 megawatts (MW) of capacity to its power plant-based facility, which has been operating since 2018.
The mining facility, located at one of the hydroelectric plants on the Hrazdan River, gets its electricity supply directly from the high-voltage grid and uses the site’s infrastructure to power containers. The platform’s representatives noted that ECOS could expand to an additional 200 MW of clean electricity. By comparison, the Berlin Geothermal plant in El Salvador gives away 1.5 MW of the 102 MW it produces to crypto miners, while Greenidge Generation near the shores of Seneca Lake in New York state should have produced around 44 MW.
Given the controversial development of cryptomining regulation in the Commonwealth of Independent States (CIS) region – the countries of the former Soviet Union – perhaps it is high time to assess the industrial potential of this post-Soviet republic, which towers 1,850 meters above sea level.
Modest review
The most certain fact about Armenia regarding crypto is that we don’t get much information from the country. In 2018, the Armenian Blockchain Association joined its counterparts from Switzerland, Kazakhstan, Russia, China and South Korea in a joint lawsuit against tech giants such as Google, Twitter and Facebook to ban crypto-related advertising. The further fate of the lawsuit is unclear, although restrictions on crypto ads have been lifted at least to some extent in recent years.
In the same year, Prime Minister Nikol Pashinyan and other top officials attended the opening ceremony of a new mining farm that claimed to be one of the world’s largest. According to local media estimates, around $50 million had been invested in the establishment of the farm with 3,000 Bitcoin (BTC) and Ether (ETH) mining machines and a planned capacity of 120,000 in the future. The farm is a joint venture of the large Armenian conglomerate Multi Group, founded by businessman and politician Gagik Tsarukyan, and the controversial international mining company Omnia Tech. No updates on the farm’s work have hit the media radar since the very first press releases.
Perhaps the most important and visible development from the country of three million was the failing effort to form a shared position regarding cryptocurrency regulations from the Eurasian Economic Union (EAEU). In 2021, a senior EAEU official revealed that member states did not support a recent initiative for a unified regulatory framework for cryptocurrency within the union. Although there is no insight into exactly which members sabotaged a project, the failure itself will have a long-lasting impact on the entire region, as the EAEU includes not only Armenia and Belarus, but also heavyweights such as Russia and Kazakhstan.
Big ambitions
Although there is no trace of the existing crypto legislation in the country (nor any ban), Armenia went on its regulatory path back in 2017 by forming a committee for blockchain technologies.
In 2018, the local Ministry of Finance launched a task force called the JAF Crypto Market Intelligence Unit (JAF CMIU), whose task was to study possible regulatory scenarios. In the same year, a special free economic zone (ECOS) was created by government decree to help attract and develop blockchain and crypto startups.
The potential residents of the 2.2 hectare ECOS get the financial benefits of zero Value Added Tax (VAT), absence of import and export duties and no property and real estate tax burden. As the official site goes, ECOS also offers multifunctional workspaces, a research and development center, acceleration programs and the infrastructure consisting of a power plant, data center and mining farm with Bitmain equipment. The only tax the zone residents are subject to is a monthly payment of income tax for employees.
Mining capacity in the free economic zone is secured by the electricity from the Hrazdan Thermal Power Plant, located in a mountainous region of Armenia with a low average annual temperature, making it beneficial for cutting cooling costs.
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Speaking to Cointelegraph, ECOS market manager Anna Komashko cites the latter fact as a serious advantage, nodding to the recent problems faced by miners in Texas following a scorching heat wave in the southern state. As she specifies, currently 60% of the Armenian facility’s 260,000 users are from the US and Europe.
A mountain of mining?
Armenia has at least two large mining facilities, one of which markets itself as state-of-the-art. The country’s government also seems moderately friendly to crypto, albeit without any concrete legislation being considered. But is this enough to consider the nation particularly attractive for investment?
Perhaps such broad factors as the country’s progress in transparent governance assessments, the large intake of IT specialists who have left Russia, and the natural propensity to attract high-tech and service firms in the absence of significant hard industry may also work in Armenia’s favor.
But with cryptomining, the decisive importance still lies in the area of the material, i.e. the country’s overall energy profile.
Data from a 2021 study by the DEKIS Research group at the University of Avila ranks Armenia 56th in the global ranking of cryptomining potential. The position itself is not too low – for example, with all its gigantic ambitions, El Salvador occupies only line number 73. Kazakhstan, which for a short time became the main place for Chinese miners, is in 66th place, and Iran is in 115 . place.
But more interestingly, by its potential, Armenia surpasses neighboring Georgia (83rd), which has established itself as a mining hub and in 2018 ranked second worldwide in Bitcoin (BTC) mining profitability.
However, one can question the DEKIS report itself, as according to the data, both mountainous countries have almost zero amount of renewable energy (0% in the case of Georgia, 0.1% in Armenia, to be precise). Speaking to Cointelegraph, Arcane Research analyst Jaran Mellerud recited remarkably different numbers:
“In Georgia, 75% of electricity is generated by hydropower, while this figure is only 31% in Armenia.”
Mellerud believes these figures make a difference for potential miners who naturally seek cheaper energy. While hydropower has almost zero marginal production costs, natural gas and nuclear power – which still make up a total majority of power supply in Armenia – are much less appropriate for secondary use. After all, Mellerud cannot consider the country as a particularly attractive destination for foreign mining due to local prices:
“The problem is high electricity prices, especially now that natural gas prices are going through the roof, and a significant share of Armenia’s electricity is generated by natural gas. I was in Georgia this summer, and even there miners are leaving the country.”
In 2021, the price per kilowatt-hour (KWh) of energy in Armenia was $0.077, which was relatively lower than in developed markets (take an example of $0.372 in Germany or even $0.15 in the United States), but still higher than in Kazakhstan ( USD 0.041), Uzbekistan (USD 0.028) or Iran (USD 0.005). With the inflation of global energy prices, the numbers may change significantly, but it is unlikely to lead to significantly different outcomes.
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According to the International Energy Agency (IEA) country profile, Armenia is heavily dependent on Russia for consumption, importing around 85% of its gas and all its nuclear fuel from there. Overall, it relies on fuel imports from one country to produce almost 70% of its electricity, which “raises concerns about the diversity of supply”.
As a report by the OCCRP suggests, even the growing number of small hydro plants provided only 9% of the energy consumed by 2013, and environmentalists raised concerns that these plants threatened the water balance of local rivers.
