NEW YORK – Last spring, cargo containers began appearing near electricity substations connected to the recently built Grand Ethiopian Renaissance Dam, Africa’s largest. Inside were stacks of powerful, energy-guzzling computers.
It was a telltale sign that Chinese Bitcoin miners, having bounced from country to country in search of cheap power and benign regulations since Beijing cast them out two years before, had arrived in the Horn of Africa.
Buffeted by political and economic headwinds, they were lured by some of the world’s lowest electricity costs – as well as an increasingly friendly government. Ethiopia, which allowed Bitcoin mining starting in 2022 even though it still bans cryptocurrency trading, has bolstered ties with China over the past decade, and several Chinese companies helped build the US$4.8 billion (S$6.5 billion) dam the miners plan to draw their power from.
Ethiopia has emerged as a rare opportunity for all firms that mine the original cryptocurrency, as climate change and power scarcity fuel a backlash against the US$16 billion-a-year industry (at Bitcoin’s current price) elsewhere. But it holds special appeal for Chinese companies, which once dominated Bitcoin mining but have struggled to compete with local rivals in Texas, the current hub.
It is also a risky gamble, for the companies and Ethiopia alike. A succession of developing countries like Kazakhstan and Iran initially embraced Bitcoin mining, only to turn on the sector when its energy use threatened to fuel domestic discontent. China’s reign as the epicenter of Bitcoin mining came to an abrupt end in 2021, when the government banned it. Dozens of companies were forced to leave.
“Firstly, countries can run out of available electricity, leaving no room for miners to expand,” said Hashlabs Mining’s chief executive Jaran Mellerud. “Secondly, miners can suddenly be deemed unwelcome by the government and be forced to pack up and leave.”
Ethiopian officials are wary of the controversy that accompanies Bitcoin mining, according to industry executives who spoke on condition of anonymity. Even after new generation capacity came online, almost half the population live without access to electricity, making mining a delicate topic. At the same time, it represents a potentially lucrative source of foreign-exchange earnings.
Ethiopia has already risen to become one of the world’s top recipients of Bitcoin mining machines, according to an estimate from mining services provider Luxor Technology. The state power monopoly says it has struck power supply deals with 21 Bitcoin miners. All but two of them are Chinese.
That Bitcoin miners are willing to ship equipment worth tens of millions of dollars to a country that just two years ago emerged from a civil war in its north is a testament to the fraught political and economic environment in which they exist.
The companies play a crucial role maintaining the Bitcoin network by using powerful computers (or “rigs” in industry argot) to solve mathematical puzzles and validate encrypted transactions on the blockchain. In return, they receive rewards in Bitcoin released from the network.
It’s a volatile business, with revenues tracking the token’s rise and fall. Miner Core Scientific plunged into bankruptcy in December 2022 as cryptocurrency markets crashed; 13 months later it won court approval to exit Chapter 11 after the price of Bitcoin jumped almost 150 per cent.
The rigs use vast amounts of power, so access to cheap electricity is a critical competitive advantage. Bitcoin mining consumed 121 terawatt-hours of power in 2023, the Cambridge Centre for Alternative Finance estimates – similar to Argentina’s use.
The reliance on abundant power is also a major vulnerability because it can put miners in competition for electricity with factories and households, exposing them to political backlash.
And in an era when rising temperatures wreak havoc around the world, Bitcoin mining is increasingly seen as a contributor to global warming that doesn’t serve any productive purpose – even though miners have claimed they’re increasingly tapping clean energy. A study by United Nations University published in October estimated that two-thirds of the electricity used for Bitcoin mining in 2020 and 2021 was generated using fossil fuels.
The Ethiopian government permitted Bitcoin mining mainly because the companies pay in foreign currency for the electricity they consume, Mr Yodahe A. Zemichael, deputy director at the Information Network Security Administration, said in a response to questions from Bloomberg News. In the written reply, he used terms like “high-performance computing” and “data mining” instead of Bitcoin mining.
The government has adopted a directive to regulate “cryptographic products” including mining, according to Mr Yodahe. He added that issuing licences “is being done in a sandbox and it’s in an early stage,” declining to say how many permits have been granted so far. BLOOMBERG
