The Kingdom of Bhutan has been quietly mining Bitcoin for years
The Himalayan kingdom confirmed it has been quietly mining bitcoin as mystery surrounds the scale of its past cryptocurrency investments.
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The Himalayan kingdom confirmed it has been running a bitcoin mining operation as mystery surrounds the extent of its past cryptocurrency investments.
Beneath the Himalayas, rivers fed by ancient glaciers supply the tiny kingdom of Bhutan with vast stores of hydropower. The renewable resource has become an economic engine, accounting for 30% of the country’s gross domestic product, and powering the homes of nearly all of its 800,000 residents. But in recent years, Bhutan’s royal government has been quietly developing a new use for those reserves: running its own bitcoin mine.
Sources familiar with Bhutan’s efforts to develop sovereign mining operations said Forbes that discussions have been ongoing since 2020, but until this week the government had never revealed its plans. Bhutan sought to harness the country’s hydroelectric power plants to power racks of mining machines that solve complex mathematical problems to earn bitcoin rewards. Once completed, this will make Bhutan one of the only countries to operate a state-owned mine, along with El Salvador.
On Saturday, days after Forbes contacted Bhutanese officials with questions about the mining scheme, a government official confirmed to the local paper The Bhutanese that it had started mining “a few years ago as one of the early entrants when the price of Bitcoin was around USD 5,000.” It explained that the proceeds go to subsidize electricity and hardware costs.
Bhutan’s Ministry of Finance did not respond to a list of questions from Forbes about the scope of the business. It is unclear when mining started, where it is located and whether the scheme has produced a profit. (As for the start date, bitcoin was valued at $5,000 in April 2019.) It is also unclear why Bhutan never disclosed the project to its citizens or international partners.
Bhutan is also in negotiations with Nasdaq-listed mining company Bitdeer, which was founded by former Chinese billionaire Wu Jihan. This month, Bitdeer revealed to investors in a stock market update that it was in talks to secure access to 100 megawatts (MW) of power for a bitcoin mining data center in Bhutan, which is slated to break ground this quarter. The Singapore-based firm – one of the world’s largest bitcoin miners – listed on Nasdaq earlier this month through a $1.1 billion merger with a blank check company. Neither Bitdeer nor Bhutanese officials responded to requests for comment on the deal.
“It is worrying that Bhutan’s resources have been invested in a secretive manner.”
A partnership with the kingdom will increase Bitdeer’s mining capacity, which is second only to bankrupt Texas-based Core Scientific in scale, by about 12%, adding data centers in Washington, Texas and Norway. “We expect to generate 100 MW of the 550 MW power supply from Bhutan, where construction of the mining data center is expected to begin in the second quarter of 2023 and be completed in the third quarter of 2024,” Bitdeer said in an April 19 investor update. The announcement did not specify who would ultimately own it.
Tucked between China, India and Nepal, Bhutan is perhaps best known for its emblematic “thunder dragon”, Buddhist monasteries and commitment to “gross national happiness” over domestic product. However, the isolated nation has spent several years cultivating a significant crypto portfolio as well. Forbes previously reported that Bhutan’s state-owned holding company, Druk Holding & Investments, secretly poured millions of dollars into cryptocurrency holdings, which was inadvertently revealed by the bankruptcies of lenders BlockFi and Celsius. While these investments were made through a sovereign entity created to manage the country’s wealth on behalf of its people, citizens were never told.
Rumors of government-backed bitcoin farms have spread across the country in recent years. A Bhutanese national told Forbes they believed there were “mostly experimental” projects underway; Druk employees listed their responsibilities on LinkedIn as operating and managing the “crypto mining farmhouse” and Bitmain-made mining rigs.
The amount of chips Bhutan has imported has also skyrocketed in recent years, according to customs data. Bhutan’s international backers have cautiously observed its growing crypto appetite and expressed concern that the $193 million spent on computer chips has led to a yawning trade deficit and coincides with a sharp drop in the country’s foreign exchange reserves. “It is worrying that Bhutan’s resources have been invested in a secretive manner in a highly volatile and risky investment that has a large environmental impact,” said a former international adviser, who asked not to be identified.
The scale of Bhutan’s mining operations
Bhutan’s government appears to have considered partnering with other miners outside of Bitdeer. Insiders at rival services and pools, where miners share computing power to unlock new bitcoin blocks faster, said they have held advanced talks with senior government officials, including Druk, about the kingdom building and running a water-powered operation. Consultants who advised the government on the mining strategy before Bitdeer’s announcement spoke Forbes that Bhutan had previously inquired about a 100 MW operation connected to one of its hydroelectric plants.
This level of expenditure would be equivalent to a data center the size of several football pitches.
This pales in comparison to massive farms like Riot’s Rockdale plant in Texas, which has a capacity of 450 MW. But the site would be on a par with other major projects, such as Russia’s Bitriver mine and an operation negotiated by Pow.re in Itaipu, Paraguay, which draws power from one of the world’s largest dams.
Bhutan’s customs data suggests the scale of mining. The landlocked country’s inbound trade is normally dominated by petrol, steel and rice. But millions of dollars worth of “processing units” or data chips rose to top imports in 2021 and 2022, according to data published by Bhutan’s finance ministry.
Last year, $142 million worth of computer chips were imported into Bhutan, making up about a tenth of the kingdom’s total inbound trade of $1.4 billion, or about 15% of the government’s $930 million annual budget. The country also imported $51 million in chips in 2021. By comparison, Bhutan’s customs officials recorded that only $1.1 million of those chips were imported in 2020. The cost of bitcoin mining rigs follows the cryptocurrency’s value as it fluctuates, but industry insiders say even by 2021 sky-high prices, this level of expenditure would correspond to a data center the size of several football pitches.
The trade data classifies the chips under the same export label used by bitcoin mining rig manufacturers and shows they were largely sourced from China and Hong Kong. However, it does not reveal who exported and imported them. Bhutan’s Ministry of Finance noted that the country’s total imports rose in 2022, partly due to spending on these chips by Druk Holdings & Investment “for special projects.” Bhutanese officials did not respond to questions about how the hardware was used.
The country has been open about its interest in blockchain as an economic boon; in 2021 it piloted a “digital central bank currency” with the exchange Ripple. But the crypto investments have largely remained secret, even when they involved entanglements with failed companies. Druk had previously told Forbes it was unable to comment on the exposure to BlockFi “due to confidentiality”. Druk’s recent annual reports and balance sheets do not mention its digital asset portfolio or bitcoin mining operations.
Druk CEO Ujjwal Deep Dahal told local media that they had borrowed from BlockFi and Celsius to support other investments, and the income from bitcoin mining meant they had not lost money on their digital asset investments.
Why Bhutan got into crypto
Bitcoin mining has increasingly become an industrial operation, often relying on specialized chips from Chinese companies such as Bitmain or Nasdaq-listed Canaan. These mining rigs are often bundled together into huge energy-hungry data centers.
China’s move to ban crypto activities in 2021, as well as moves in Kazakhstan and Sweden to restrict or tax bitcoin miners, have forced many operations to find new homes with cheap power sources. The USA, Norway and other flight destinations such as Paraguay, which also has enormous hydropower capacity, have attracted large numbers of miners. Still, several of the largest mining operators such as Core Scientific and Compute North filed for bankruptcy after bitcoin prices plunged and energy prices rose over the past year.
“It’s no surprise that entities are mining bitcoin in Bhutan. The mountainous country has a huge hydropower capacity compared to its small population and produces a similar amount of electricity per capita as the United States – a much richer country,” said Jaran Mellerud, bitcoin mining analyst at Luxor. “This cheap, stranded hydropower is undoubtedly alluring to miners whose only job is to turn undervalued electricity into bitcoin.”
This was reported by sources familiar with the matter Forbes that the pandemic was a trigger for senior officials in Bhutan to begin talks with bitcoin miners and mining suppliers. Bhutan, which was closed to foreigners until 1974, sealed its borders again for almost two years to protect its population of 800,000 from Covid-19. (The country famously contained the virus for months until the first case was reported in an American tourist in January 2021, prompting the shutdown.) The country has claimed only 21 Covid-19 deaths to date, but the pandemic devastated the tourism industry. , which is the core of the economy. Bhutan has championed several new economic concepts recently, such as the Gross National Happiness index, and high-end tourism, with wealthy visitors hit with visa fees of $200 per day.
The Singapore Bhutan Association, a club of Chinese, Singaporean businessmen and a member of Bhutan’s royal family, fronted one proposal to drive bitcoin miners out of shipping containers, according to recent pitch documents reviewed by Forbes. The scheme promised royal support and cheap energy to investors willing to spend up to $800,000 on shipping containers fitted with a 700 kilowatt mining rig.
“This cheap, stranded hydropower is undoubtedly alluring to miners whose only job is to turn undervalued electricity into bitcoin.”
Dasho Ugen Tsechup Dorji, uncle of Bhutan’s current king, said the project is currently on hold. The government “has not approved the private sector to engage in this business,” Dorji said Forbes. Singapore Bhutan Association board member Humphery Chan said the collapse of FTX, and the logistical problems of transporting and operating mining rigs in the landlocked nation, had hurt investor interest.
Analysts have also voiced concerns about Bhutan’s suitability for large-scale mining. While Bhutan exports about 75% of the electricity produced in its country to India annually, rivers recede during the dry winter season and it actually imports energy back from its giant neighbor.
During these periods, miners risk losing significant amounts, according to Alex de Vries, an economics researcher at the Vrije Universiteit Amsterdam and the author of Digital economist. “If you close for longer periods, you risk not even being able to recover your investment. Not running means no income.”
