In light of Russia’s recent shift towards embracing cryptocurrency at the governmental level, one might assume that clandestine digital asset activities are a thing of the past in the country. Yet, recent developments suggest quite the opposite, with some crypto mining operations transitioning from being metaphorically underground to literally beneath the surface.
In a notable instance, authorities in Russia’s Republic of Dagestan recently revealed an advanced cryptocurrency facility that was excavated underground, as reported by Reuters on September 24.
This unconventional approach stems partly from the increasing scrutiny surrounding the energy-intensive nature of digital asset operations in recent years. For instance, companies engaging in Bitcoin (BTC) and other crypto mining must adhere to a special government register, while individuals need to provide additional information to Russia’s Ministry of Finance.
Mining in the region has been linked to energy grid instability, including a significant fire in Makhachkala, the capital of Dagestan. This incident prompted Prime Minister Abdulmuslim Abdulmuslimov to advocate for stricter oversight of crypto operations in the area.
As mining enterprises grapple with rising operational expenses and regulatory scrutiny in 2024, the profitability of miners has come under pressure through various channels. Energy consumption has been a contentious topic globally, with concerns raised about its environmental impact. Additionally, the Bitcoin halving in April posed a threat to miners’ profits, with JPMorgan estimating that mining a single Bitcoin cost around $45,000.
In a contrasting move, Russia’s stance on digital assets has generally become more favorable, as evidenced by the State Duma’s approval of cryptocurrencies for international trade and settlements in late July. This decision was widely seen as a strategic move in the country’s efforts to evade sanctions.
Overall, while Russia is embracing cryptocurrencies at a higher level, underground crypto mining operations, particularly in Dagestan, continue to disrupt the status quo, highlighting the challenges and complexities facing the industry.