Armenia wants to become a center for Bitcoin Mining

 Armenia wants to become a center for Bitcoin Mining

A digital platform called ECOS Free Economic Zone brought positive news from Armenia, a country that doesn't often cause a stir on the world crypto map, at the end of August. ECOS reported expanding the facility's capacity by 60 megawatts (MW), which has been in operation since 2018. 

The mining operation, which is located near one of the hydropower facilities on the Hrazdan River, uses the site's infrastructure to power containers while receiving its electricity straight from the high-voltage system. Representatives of the platform mentioned that ECOS might grow to produce 200 MW more of renewable electricity. In contrast, the Berlin Geothermal Plant in El Salvador distributes 1.5MW of the 102MW it generates to cryptocurrency miners, but the Greenidge Generation near Seneca Lake in the State of New York should have generated roughly 44MW.

Perhaps it is high time to evaluate the industrial potential of this post-Soviet country, standing 1,850 meters above sea level, given the contentious developments with crypto mining laws in the Commonwealth of Independent States (CIS) region.

Limited Publicity

The most certain thing we know about Armenia in terms of crypto is that it doesn't provide us with a lot of information. In 2018, the Armenian Blockchain Association filed a lawsuit against tech behemoths including Google, Twitter, and Facebook for prohibiting advertisements linked to cryptocurrencies, together with its counterparts from Switzerland, Kazakhstan, Russia, China, and South Korea. Although there have been some recent improvements to the prohibitions on crypto advertisements, it is unclear where the case will go from here.

The opening ceremony of a new mining farm, which billed itself as one of the biggest in the world, is said to have been attended by Prime Minister Nikol Pashinyan and other prominent figures in the same year. According to estimates from the local media, about $50 million had been spent on building the farm, which currently has 3,000 Bitcoin (BTC) and Ether (ETH) mining machines with an eventual capacity of 120,000. The farm is a joint venture between Omnia Tech, a contentious international mining company, and Multi Group, a significant Armenian conglomerate led by businessman and politician Gagik Tsarukyan. Since the very first press releases, there have been no updates regarding the farm's operations.

The failure of the Eurasian Economic Union (EAEU)  to create a consensus position on cryptocurrency legislation was perhaps the most significant and well reported development from the three million nation. A senior EAEU official disclosed in 2021 that the union's member states had just rejected a proposal for a unified regulatory framework for cryptocurrencies. The failure itself will have a long-lasting effect on the entire area, as the EAEU comprises not just Armenia and Belarus but also such mining superpowers as Russia and Kazakhstan. However, it is unknown which specific members specifically sabotaged a project.

Big Aspirations

Although Armenia has no evidence of an existing regulatory framework for cryptocurrencies (and does not prohibit them either), the country took a step toward regulation in 2017 by creating a committee on blockchain technologies. 

The Japanese Ministry of Finance established the JAF Crypto Market Intelligence Unit (JAF CMIU) in 2018 with the goal of researching potential regulatory scenarios. A unique Free Economic Zone (ECOS) was created by government decree the same year in order to support the development and attraction of blockchain and cryptocurrency enterprises.

Potential residents of the 2.2-hectare ECOS are given the financial advantages of having no value-added tax (VAT), no import or export taxes, and no tax burden on real estate. According to the official website, the ECOS also provides multipurpose workspaces, a research and development center, acceleration programs, and infrastructure made up of a power plant, data center, and mining farm with Bitmain gear. Residents of the zone are only required to pay an employee income tax on a monthly basis. 

Electricity from the Hrazdan Thermal Power Plant, which is located in a mountainous area of Armenia with a low average yearly temperature, which is good for reducing cooling costs, secures the mining capacities of the free economic zone.

ECOS marketing manager Anna Komashko mentions the latter feature as a significant benefit in an interview with Cointelegraph, alluding to the current issues for miners in Texas following a brutal heatwave in the Southern state. She notes that today, of the 260,000 users at the Armenian facility, 60% are from the United States and Europe.

A Mountain of Mining

At least two sizable mining operations are present in Armenia, one of which advertises itself as cutting-edge. The nation's government also appears to be somewhat supportive of cryptocurrencies, while no specific law is currently under consideration. But does this prove that the country is particularly appealing to investors? 

Perhaps broader factors like Armenia's improvement in transparent governance rankings, the large influx of IT professionals who have emigrated from Russia, and the country's natural propensity to draw in high-tech and service companies in the absence of a sizable hard industry could also be to Armenia's advantage.

However, when it comes to crypto mining, the country's total energy profile continues to be of the utmost significance. 

According to data from a 2021 study by the DEKIS Research group at the University of Avila, Armenia has the 56th-highest potential for worldwide crypto mining. The ranking itself isn't too low; for instance, El Salvador only takes up line number 73 despite its enormous objectives. Iran is ranked 115th, while Kazakhstan, which for a brief while was the top destination for Chinese miners, is ranked 66th. 

What's more intriguing is that Georgia, Armenia's neighbor, is ranked 83rd globally in terms of mining profitability in 2018, surpassing Armenia in terms of potential. Georgia has positioned itself as a mining centre.

One can dispute the DEKIS report itself, though, given that its data indicates that both mountainous nations have almost no renewable energy at all (0.1% in Armenia and 0.0% in Georgia, respectively). Jaran Mellerud, an analyst with Arcane Research, provided strikingly different figures in an interview with Cointelegraph. 

"Only 31% of the electricity in Armenia is produced via hydropower, compared to 75% in Georgia."

Mellerud thinks that these figures matter for prospective miners who naturally look for less expensive energy. While natural gas and nuclear power, which still make up the vast majority of Armenia's power supply, have practically negligible marginal production costs, respectively, they are significantly less practical for collateral usage. As a result of domestic prices, Mellerud cannot view the nation as being particularly desirable for international mining: 

"Since a sizable portion of Armenia's electricity is produced using natural gas, the issue is high electricity prices, particularly at the moment when gas prices are skyrocketing. Even there, where I visited this summer, miners are abandoning the nation." 

By 2021, the cost of electricity in Armenia was $0.077 per kilowatt hour (KWh), which was more expensive than in Kazakhstan ($0.041), Uzbekistan ($0.028), and Iran ($0.005) but still less expensive than in developed countries ($0.372 in Germany or even $0.15 in the United States). The figures could alter dramatically as the price of energy increases globally, but the results would not be noticeably different.

Armenia, which imports 85% of its gas and all of its nuclear fuel from Russia, is highly reliant on that nation for its energy needs, according to the country's profile from the International Energy Agency (IEA). Overall, it produces over 70% of its power from fuel imported from a single nation, "raising worries about the diversity of supplies." 

Even the growing number of tiny hydroelectric plants, according to a report by OCCRP, only supplied 9% of the electricity needed by 2013; environmental scientists expressed concern that these plants would jeopardize the water balance of nearby rivers.

Article Credit: CoinTelegraph

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