The most comprehensive guide to going offshore for mining: Where to go if you want to go offshore?

This article was published by Deep Chain Finance, authored by Hegel.

The Financial Committee of the State Council of China has issued a ban on Bitcoin mining and trading, with Inner Mongolia and Xinjiang conducting comprehensive investigations and crackdowns on mining activities within their jurisdictions. The domestic situation is becoming increasingly tense, and going overseas is becoming an inevitable trend.

Globally, the mining hash power is shifting from being dominated by China to a more balanced distribution between China and overseas, which may be a significant trend for the future. But which regions are more suitable for Chinese miners?

Deep Chain Finance has compiled the seven regions with the highest cryptocurrency hash power concentration, including the United States, Russia, and Canada, and analyzed which overseas areas are more suitable for miners based on geographical environment, business, and policy factors, providing you with a detailed and comprehensive "going out" guide.

Risk Warning: This article is for industry communication only and should not be used as investment advice. According to the spirit of relevant meeting documents from the Financial Committee of the State Council and the China Banking and Insurance Regulatory Commission, investors are advised to view blockchain and cryptocurrency rationally.

Overseas Layout of Mining Farms

Currently, leading mining companies are basically planning to go overseas.

Bitmain: Going to Kazakhstan

During the analyst conference call on June 1, Chairman Zhang Nangeng stated that approximately $200 million has been paid to wafer fabs to ensure supply capacity, locking in supply for the next 12 months; self-operated mining will start in Kazakhstan in early June.

ViaBTC Pool: Going to North America

ViaBTC Pool founder Jiang Zhuoer stated on Weibo that the joint mining business will no longer be open to mainland China and will mainly deploy mining farms in North America in the future.

Bit Deer: Going to North America

Wu Jihan has always focused on overseas operations. Currently, over 200MW of mining farms have been established in North America, and an additional 300MW will be expanded this year.

Bit Mining: Going to the United States and Kazakhstan

Firstly, Texas, USA. On May 19, Bit Mining announced that it had signed investment terms with Bit Deer’s wholly-owned subsidiary Dory Creek to jointly invest in building a cryptocurrency mining farm in Texas, USA. Bit Mining plans to invest a total of $25.74 million. The proposed Texas mining farm will have a total operational load of 57.2 megawatts and will use over 85% clean and low-carbon energy for power generation.

Secondly, Kazakhstan. On May 24, Bit Mining announced plans to invest in a mining farm in Kazakhstan, with a total investment of 60 million RMB, in collaboration with a Kazakh company to build and operate a 100-megawatt mining farm. Once completed, the company will hold an 80% stake in the Kazakh mining farm, while the partner will hold a 20% stake.

Hash Power Bee: Going to Pakistan or Russia

The company’s mining farm is preparing to relocate abroad, planning to move to Pakistan or Russia.

Wang Wenguang, head of Bit Deer’s mining business, summarized the advantages of overseas mining farms during a media interview in March this year:

1. Stable policies and government support. North America and Europe have a lot of electrical load and are very welcoming to industries that can create jobs and are pollution-free.

2. High asset value and standardized operations. Foreign electrical equipment standards are high, and electrical equipment that meets EU CE or US UL standards retains its value, unlike in China, where non-operational mining farms can only be sold as scrap.

3. Low electricity prices and stable power supply. The average electricity price is around 3 cents, and it is all supplied by the grid.

What factors should be considered for overseas mining farms?

Although stable policies and low electricity prices are suitable for long-term operations, going overseas will inevitably come with many pitfalls. In addition to considering commercial factors such as electricity prices, it is also necessary to consider compliance issues across multiple areas such as finance, foreign trade investment, and energy and environmental protection.

Visible non-policy factors:

Firstly, electricity prices. This is the main cost; the lower the electricity price, the more attractive it is to miners.

Secondly, temperature. In areas with lower temperatures, there is no need to establish separate cooling systems. In urban mining, the huge heat generated must be considered.

Thirdly, network speed. The faster the network speed, the quicker the mining and blockchain processing.

Considering these, the best options are regions that combine all three advantages, such as Russia, Canada, and Nordic countries like Iceland.

Next are regions with two advantages, including the United States, UAE, and Central European countries like Poland.

Lastly, there are regions with one advantage, such as low electricity prices in Saudi Arabia and India, fast network speeds in Western Europe, Kenya, Australia, Thailand, Japan, South Korea, and low temperatures in Greenland, Mongolia, Kyrgyzstan, and Tajikistan.

In contrast, other regions do not possess these three major advantages in cryptocurrency mining, especially most areas in Africa, Latin America, and West to Middle East.

Data Source: South China Morning Post

Deep-rooted policy factors:

The above image only mentions non-policy commercial factors, but the operation of cryptocurrency mining farms also needs to consider policy factors. Currently, this may be a more significant part.

Firstly, financial and foreign trade policies. Do they support cryptocurrencies or allow mining? Will mining machines be suddenly confiscated? If there is a natural disaster, will there be subsidies for power loss? Are there any new tax incentives? Are there preferential or discriminatory policies for Chinese enterprises?

Secondly, energy and environmental protection policies. Has the country joined the Paris Agreement? How does it commit to emission reductions internationally? What is the current carbon emission situation? Is there enough clean energy to replace it?

It is worth noting that the countries and regions with concentrated hash power or conditional mining have mostly submitted their Nationally Determined Contributions (NDC) to the United Nations, which is also a requirement of the Paris Agreement.

Data Source: ClimateWatchData

On the energy issue, the introduction of carbon emission rights essentially uses financial means to solve a political and moral problem in a market-oriented manner. The right to mine cryptocurrencies is essentially consistent with oil dollars, and their common opposition is carbon emission rights.

Therefore, if mining farms go overseas, they may face the following situations:

1. If the environmental protection issues in the host country are prominent, on the one hand, high-energy-consuming activities must be restricted to appease the public, and on the other hand, high costs must be incurred to purchase carbon emission rights, leading to unsustainable operations, making cryptocurrency mining farms a target.

2. If the environmental protection issues in the host country are not particularly severe, the government has two major choices: either to introduce mining farms to gain substantial electricity and tax revenue, or to sell carbon emission rights to gain wealth transferred from other countries.

In other words, if a country has abundant energy resources, the electricity cost will be very low; if carbon emission pollution is not severe, and there is even abundant clean energy support, it will not be constrained by the Paris Agreement and subsequent international carbon emission trading system; if the business environment is good and policies are stable, it will be very suitable for cryptocurrency mining farms to relocate.

Otherwise, even if non-policy conditions are excellent, they may still make mining farms unpredictable in future international political games.

How are the top hash power countries doing?

Since going overseas is the goal, let’s see which places are most suitable for mining farms to "go out."

According to data from the Cambridge Centre for Alternative Finance at the University of Cambridge, as of now, 65.08% of global hash power is concentrated in China, followed by the United States, Russia, Kazakhstan, Malaysia, and Iran, each with over 1%, while Canada, Germany, Norway, and Venezuela have between 0.4% and 1%.

Data Source: Cambridge University Judge Business School

United States: Tailored by State

Crescent Power Supply Company has conducted statistics on Bitcoin mining costs in various states, and the results are:

The five cheapest states: Louisiana (cost to mine one Bitcoin is $3,224), Idaho, Washington, Tennessee, Arkansas. The five most expensive states: Hawaii (cost to mine one Bitcoin is $9,483), Alaska, Connecticut, Massachusetts, New Hampshire.

Data Source: Crescent Power Supply Company

However, the reality is that most global mining farms have chosen Texas.

In October 2019, Bitmain announced the establishment of a 50-megawatt cryptocurrency mining farm in Rockdale, Texas, with plans to gradually expand to 300 megawatts, making it the largest Bitcoin mining farm in the world. Additionally, they plan to teach local students about cryptocurrency. Local residents hope that the mining business can bring hope to their difficulties, optimistically believing that Bitmain's new mining farm can bring more high-paying technical jobs to the community.

In April this year, Darin Feinstein, founder and CEO of North American cryptocurrency mining company Blockcap, stated that the company chose Texas as its headquarters due to potential recruitment resources and regulatory environment. Texas faces fewer geopolitical risks than other places. Additionally, Texas aims to protect the privacy elements of blockchain companies, which other states cannot achieve. Once its new facility is operational, the hash power will reach 3.5 EH/s, deploying a total of 42,000 mining machines.

In contrast, the economic center New York does not support mining very much. Plattsburgh, New York, believes that the emergence of mining farms has brought heavy financial pressure to the city, and the mayor has issued a temporary ban to halt the cryptocurrency mining industry. Automated mining farms bring few jobs, and the rented equipment cannot be taxed. For New York, the negative effects of mining farms outweigh the positive effects.

Russia: Siberia Welcomes You

Russia ranks first in the world in fossil fuel production, supplying low-cost resources domestically and exporting large quantities of natural gas and other resources to Europe. The low energy costs make Russia a battleground for mining. Russia prohibits the use of cryptocurrencies to purchase goods and services but has allowed cryptocurrency mining and trading since 2021, with even the military joining the enthusiastic mining ranks. Currently, the most welcoming places for miners in Russia include:

Irkutsk Oblast. The Russian military mines here. Relying on the hydropower resources of the Angara River, the annual capacity of the Bratsk Hydroelectric Power Station alone can reach 22.5 terawatts, while global Bitcoin mining consumes 73 terawatts of electricity annually, so theoretically, this region can control 20% of the world's new Bitcoin. As of now, the largest local mining farm, BitRiver, consumes only 100 megawatts of electricity, with available power being quite abundant.

Leningrad Oblast. Crypto Universe has invested in a massive mining farm equipped with 3,000 mining machines, covering an area of 4,000 square meters, located in a Soviet fertilizer production laboratory that has been abandoned for 20 years. At the opening ceremony of the mining farm, the company stated that it would be used for mining Bitcoin (BTC) and Litecoin (LTC), with production expected to start this year.

Krasnoyarsk Krai. The electricity in the polar region is 25% cheaper than that of Russia's power grid, and Norilsk can generate its own electricity through natural gas and hydropower, allowing mining farms to obtain electricity at prices as low as 2.75 rubles (approximately $0.039 per kilowatt-hour). BitCluster has already invested in this area. However, this region is classified as a secret administrative area, restricting foreign access; additionally, it is a heavy metal mining area, which has made it "rank" as the most polluted city in Russia in 2017, with annual carbon emissions six times that of the second place, facing international condemnation, making it extremely difficult for Chinese mining farms to relocate.

In summary, Russia is still a very ideal place for cryptocurrency mining. China and Russia are friendly countries, and the pressure in terms of economic and trade policies is relatively low.

Canada: Vast Opportunities Await

Canada encourages and supports innovation in the cryptocurrency field, mainly due to its economic size and financial market scale being much smaller than that of the United States. Therefore, as an immigrant country, Canada has lower trial-and-error costs. Additionally, Canada is located at a higher latitude, with more land within the Arctic Circle than the United States, which has attracted many Chinese mining farms to "go out" since 2018. Three provinces are particularly noteworthy:

Quebec. Rich in hydropower resources, it ranks first in the country. The electricity price for data centers is $0.0248 per kilowatt-hour, while the electricity price for cryptocurrency mining farms is $0.0394 per kilowatt-hour, which is 50% to 75% lower than other regions in Canada. David Vincent, the market director of Hydro-Québec, even stated, "The market demand is quite strong; I don't even need to promote it anymore. Basically, I can attract a new major client every day." Bitmain has also invested in Quebec.

Manitoba. The province has received countless requests to establish mining farms but is very cautious about energy policies, as the electricity consumed by a mining farm is enough to supply 1,900 local households. However, local enterprises are already considering building industries that complement mining. For example, Myera Group uses the waste heat generated from Bitcoin mining to heat greenhouses, attempting to create an "Earth-like ecosystem."

British Columbia. Especially Vancouver, which is known as a Chinese community comparable to San Francisco. Hut 8 Mining Corp. and BitFury once joined forces to create North America's largest mining farm, and HashChain has also mined Dash here. However, with the outbreak of the pandemic, the proportion of local discrimination against Asians has increased, even more severe than in the United States, which is a problem that Chinese mining farms need to face.

In addition, Alberta is also quite favored. Overall, Canada is relatively suitable for Chinese mining farms to relocate.

Europe: Favorable Policies Exceed Expectations

Most developed countries in Europe have excellent business conditions. In particular, many Nordic countries near the Arctic Circle have low environmental pressure and have proposed development policies for mining that exceed many Chinese people's imaginations.

Iceland: It is increasingly becoming a paradise for miners due to its 200+ volcanoes and abundant geothermal resources, providing nearly 100% clean energy, receiving praise from the United Nations without worrying about environmental impacts. Major players include Australia's largest listed mining company DigitalBTC and cloud mining company Genesis Mining. Genesis has built the world's largest Ethereum mining farm in Iceland.

Georgia: It strongly encourages the development of cryptocurrencies, especially forming deep cooperation with mining giant BitFury to develop the world's first blockchain land property registration system, offering generous tax incentives: BitFury does not have to pay land tax on its 18-hectare land in the capital Tbilisi, and mining is recognized as an "export" industry, thus exempting 18% of value-added tax. Although the actual electricity costs have not been disclosed, it is widely believed to be below the capital's average electricity price of $0.08 per kilowatt-hour, meaning that opening a mining farm in Georgia is almost a zero-cost, highly profitable industry.

Estonia: It recognizes cryptocurrency as a "digital value storage medium," attracting hundreds of blockchain and cryptocurrency companies to settle. The electricity price is $0.174 per kilowatt-hour, and the network speed is at a medium level globally, ranking 55th in the world this year with 78.58 Mbps according to SpeedTest.

Switzerland: It has fast network speeds, slightly lower than the United States; therefore, electricity prices are higher, charging $0.228 per kilowatt-hour. Switzerland now defines cryptocurrency as an asset, making it one of the most miner-friendly regions.

Norway: Its network speed is comparable to Canada, ranking in the top 20 globally. With high latitude, cool summers, and snowy winters, it is suitable for heat dissipation. It has abundant hydropower resources. The local central bank does not recognize cryptocurrencies but does not oppose holding and trading them.

Finland: It has relatively good network conditions, similar to Kuwait. The electricity price is $0.183 per kilowatt-hour.

Latvia: Its network speed is similar to Finland, and electricity prices have been declining since 2014, now only 14.2 euro cents per kilowatt-hour.

Despite the overall favorable investment environment, Chinese mining companies also need to consider the current situation. In May this year, the Comprehensive Agreement on Investment (CAI) between China and the EU, which took seven years to negotiate and was reached at the end of last year, hit a snag, and the European Parliament has postponed its approval. The future development of China-EU relations remains unclear.

Kazakhstan: Emission Reduction Pressure is Much Greater Than Expected

China and Kazakhstan are friendly neighboring countries, and being close to Xinjiang makes Kazakhstan a top choice for many large mining companies. In 2019, Zhang Xiao, the Chinese ambassador to Kazakhstan, stated in an interview with Khabar TV and other media that there are broad prospects for cooperation between the two countries in blockchain and other technology fields.

On the surface, Kazakhstan has a relatively clear policy roadmap.

In April last year, the Ministry of Economy of Kazakhstan submitted a proposal to impose a unified tax rate of 15% on the cryptocurrency mining process to increase fiscal revenue and overcome the pandemic crisis.

In September last year, Kazakhstan's newly appointed Minister of Digital Development, Bagdat Mussin, claimed that the country was negotiating to attract over $700 million in investment to expand its cryptocurrency mining sector. At that time, Kazakhstan already had 13 cryptocurrency mining farms, with four under construction, attracting $190 million in investment.

In May this year, the Kazakhstan government formulated a roadmap to stimulate the development of the country's cryptocurrency industry and blockchain technology.

The global mining community's response has been very positive.

However, Kazakhstan's policies are also changing. Kazakhstan only allows the mining of asset-backed cryptocurrencies and prohibits the mining of "unsafe" cryptocurrencies like Bitcoin.

Many people overlook one point: Kazakhstan is not as developed as European countries, and environmental pollution is already quite serious. According to Deloitte, 15% of the country's GDP comes directly from oil and gas, and when including indirect sectors, this ratio can reach 21%.

Kazakhstan has also joined the Paris Agreement, committing to reduce emissions by 15% compared to 1990 levels by 2030. However, according to the Kazakhstan Ministry of Ecology and Environmental Protection, the country has not fulfilled its commitments, with an increase of 100,000 tons of industrial and energy pollution emissions in 2018 alone.

Relocating to Kazakhstan, the variables do not lie in the financial sector but in energy policies.

Iran: Flip-Flopping and Confiscating Mining Machines

According to statistics from Bitooda, Iran is the third-largest holder of Bitcoin in the world, after the United States and China, accounting for 8% of the total. However, Iran's mining and cryptocurrency policies are not particularly stable.

On the one hand, against the backdrop of U.S. sanctions, Iran hopes to use cryptocurrencies to import goods and defines domestic cryptocurrency mining activities as normal "industrial production" activities; on the other hand, due to limited electricity supply, Iran has cracked down on mining activities, even resorting to intelligence agencies to hunt down private miners.

On April 28, the Central Bank of Iran announced that banks and licensed currency exchange dealers could use cryptocurrencies mined from designated farms to pay for imported goods. Analysts believe this could lead to local cryptocurrency mining daily revenues of up to $2 million. However, on May 7, the Central Bank of Iran banned the trading of cryptocurrencies mined abroad. Then, on May 26, President Rouhani officially announced that Iran would prohibit cryptocurrency mining before September 22. Subsequently, the Minister of Energy explained: mining one Bitcoin requires consuming 300,000 MWh of energy, which means cutting off electricity for 30,000 households for 24 hours.

In fact, the electricity fees paid by mining farms are five times that of steel mills and other higher energy-consuming industries, and legally licensed Chinese Bitcoin mining companies had their operations halted on January 14 this year, with 45,000 ASIC mining machines confiscated by authorities. Last July, the vice president of Iran's power generation, distribution, and transmission company even stated plans to cut mining electricity prices by 47%.

Given that intelligence agencies have already intervened, coupled with Iran encouraging citizens to report mining activities through rewards (100 million rials per person, equivalent to $480), Chinese mining companies should not relocate to Iran.

Malaysia: Stolen Electricity Will Eventually Be Repaid

The reason Malaysia attracts miners is quite amusing. In the mining community, Malaysia is nicknamed the "paradise for stealing electricity." Wu said that in Malaysia, being caught stealing electricity does not lead to imprisonment; one only needs to pay back the electricity fees. Therefore, some mining farms even use the IDs of local unemployed individuals to sign rental contracts with landlords, and if caught stealing electricity, they simply run away.

The chairman of the Islamic Advisory Council of the Malaysian Securities Commission (SC), Modh Daud Bakar, once said: the prospects for cryptocurrency technology are vast, but Malaysia knows too little about it.

However, the era of mining by stealing electricity is also coming to an end. Malaysia's regulations on mining are becoming increasingly strict. In February this year, authorities in Johor, Malaysia, arrested seven men and seized 1,746 Bitcoin mining machines worth 2.6 million ringgit ($64,000) from 21 locations.

Conclusion: Which Regions Are More Suitable for Going Overseas?

Therefore, regardless of which country/region, there are certain risks associated with the relocation of Chinese mining farms. It can be confirmed that non-policy variables such as electricity prices, energy, temperature, and network speed are difficult to determine, and the most significant risks lie in the dual regulatory policies of finance and energy.

Returning to the specially prepared map by the South China Morning Post: the countries most suitable for going overseas are often also the countries with the highest concentration of hash power; the best choices are the more economically developed United States, Russia, Canada, and Europe. Among them, the recommended first choice is countries with higher latitudes and lower emission reduction pressures, such as Iceland, Russia, Canada, Georgia, and Poland near the Arctic Circle.

However, transporting mining machines abroad requires multiple procedures from the customs and commerce departments of both countries; conducting local research and establishing partnerships will also take a longer time.

Even if approved, one must consider the dual costs of business and compliance. More frighteningly, since China does not accept the return of second-hand electronic products, once going overseas, there is no turning back. In the context of the pandemic, accurately estimating and adjusting for such a long-term strategic battle in the future is very challenging.

In summary, the days ahead for Chinese miners may not be easy, both now and in the future.

References:

1. China to crack down on mining of cryptocurrencies, delivering a one-two punch to digital tokens after triggering global sell-off

https://www.scmp.com/tech/policy/article/3134473/china-escalates-crackdown-bitcoin-mining-trading

2. Exclusive interview with Wang Wenguang, head of Bit Deer Group's mining business: The future of mining is overseas

https://news.iresearch.cn/yx/2021/03/364039.shtml

3. Under regulatory siege, mining farms rush overseas: Targeting Europe, North America, etc., domestic user IPs blocked

https://finance.sina.com.cn/jjxw/2021-05-28/doc-ikmyaawc8090104.shtm

4. Bitcoin Mining Costs in the U.S.

https://www.investopedia.com/news/five-best-states-bitcoin-mining-and-worst/

5. Quietly making a fortune, no one knows how many Bitcoins Russia has mined

https://www.thepaper.cn/newsDetailforward11798527

6. Chinese Bitcoin Miners Explore New Options

https://safehaven.com/article/44864/chinese-bitcoin-miners-explore-new-options

7. The Best Places In The World To Mine Bitcoin

https://safehaven.com/article/44869/the-best-places-in-the-world-to-mine-bitcoin

8. Kazakhstan in talks on $700 mln in cryptocurrency mining projects

https://www.reuters.com/article/kazakhstan-crypto-idUSL8N2FZ0NB

9. Will Kazakhstan's booming cryptocurrency mining industry be a boon or a danger for the environment?

https://www.equaltimes.org/will-kazakhstan-s-booming#.YLiIdqgzZPZ

10. 2020 NDC Tracker

https://www.climatewatchdata.org/2020-ndc-tracker