Original Author: Neil Barnett, RUSI
Original Translation: Felix, PANews
In a world where the Kremlin is increasingly isolated and focused on foreign influence operations, there is a strong incentive to engage in Bitcoin mining for cross-border activities. As the Russian gas market shrinks, the phenomenon of converting surplus energy into electricity and then into cryptocurrency is gradually becoming prevalent. Since 2018/19, this situation has been occurring on a large scale in Russia's "shadow territories" (Transnistria, Donbas, and Abkhazia). Utilizing these legally ambiguous areas can obscure the facts and allow for the plundering of Russia's gas and electricity resources. Moreover, as is typical in post-Soviet Russia, private sector participants are conducting secret operations.
How to Convert Cheap Energy into Anonymous Currency
The anonymity of Bitcoin is questioned by cryptocurrency advocates, who point out that Bitcoin is traceable and that cryptocurrencies actually provide unprecedented transparency. While this is somewhat true, there are several ways to obscure traces for nefarious purposes. These methods include using mixers like Tornado Cash to obscure on-chain tracking; utilizing a dark web system called "The Onion Router"; or simply purchasing offline Bitcoin wallets from owners at a cash premium. Mining new Bitcoins also offers a degree of protection, as tokens have no historical record at the time of their first transfer, thus providing no data to investigators.
To mine, the Bitcoin network requires computer processing power. Since the system is decentralized, Bitcoin's designers incentivize those providing the computing power. The incentive is the delivery of new Bitcoins to nodes that provide processing power for network transactions. "Bitcoin miners" invest in "mining equipment" (dedicated servers) to perform these calculations and generate new tokens.
The key cost variable in Bitcoin mining is the energy required to power these servers, which is also one of the reasons why Russia's "shadow territories" are attractive. A study conducted by Nftevening.com in September 2024 indicated that "the cost of Bitcoin mining in Ireland is $321,112, while in Iran, miners only pay $1,324, making it over 240 times cheaper." Even if Bitcoin approaches $100,000, mining Bitcoin in many jurisdictions remains unprofitable.
Transnistria, Donbas, and Abkhazia do not rank among the ten cheapest regions for Bitcoin mining, as they are all gray areas beyond the control of sovereign governments. Furthermore, the methods these regions use to obtain electricity are not recorded by investigations, which rely on state-published electricity prices. If electricity costs are close to zero and the relevant areas are not internationally recognized, such research methods become ineffective.
Gray Areas
The "shadow territories" of Transnistria, Donbas, and Abkhazia (all under Russia's "protection") provide special opportunities for Bitcoin mining for those allied with the Kremlin.
Transnistria: Utilizing energy from the MGRES power station, which receives fuel in the form of free gas provided by Gazprom. A technology park established to attract miners offers electricity at a price of $0.043 per kilowatt-hour.
Donbas: Since 2021, it has been using electricity from coal-fired power plants, which normally would power heavy industry. Electricity stolen from the Zaporizhzhia Nuclear Power Plant may also be used. The Ministry of Labor reports that there is a mining center at the Donetsk Metallurgical Plant, and at least one other, both operating under the protection of the Federal Security Service (FSB).
Abkhazia: Since 2015/16, it has been using electricity from the Inguri Hydropower Plant bordering Georgia and imported Russian electricity. The cost of electricity is as low as $0.005 per kilowatt-hour. However, public sources report that since 2023, mining volumes in Abkhazia and mainland Georgia have sharply declined.
Transnistria: The Perfect Bitcoin Mining Environment
Transnistria has access to Gazprom's free gas and substantial power generation capacity, making it an extremely attractive location for Bitcoin mining.
A key factor is the arrangement between Moldova and Transnistria regarding gas supply and power generation. Both regions receive Gazprom's gas via pipelines, and the gas for both regions is billed through Gazprom's contract with Moldovagas (50% of Moldovagas is controlled by Gazprom). However, while Moldova pays for the gas, the gas supplied to Transnistria is nominally added to Moldovagas' debt of about $709 million, which is unlikely to be repaid and is disputed.
Since Maia Sandu took office as President of Moldova in 2021, the country has reduced its dependence on this energy. However, what has not changed is that the gas in Transnistria is effectively free, used to power the 2,500 MW MGRES power station. Moldova also relies on MGRES for about 80% of its electricity, illustrating the strange interdependence between these originally hostile entities.
This free energy is a subsidy from Moscow, aimed at keeping Transnistria's outdated, heavily polluting, and inefficient heavy industries running, including chemicals, steel, and cement. It also provides very cheap household gas, helping to solidify public support for the local regime.
According to information provided by the Moldovan government, the scale of this subsidy can be seen in the astonishing gas consumption of the two entities: Transnistria (population 300,000) consumes about 2 billion cubic meters annually, while mainland Moldova (population 2.5 million) consumes about 1 billion cubic meters annually. At the delivery point, the per capita gas reception in Transnistria is about 16 times that of Moldova (however, this figure is offset by the fact that some of Transnistria's gas is used to generate electricity at the MGRES plant, which is then sold to Moldova). It is unclear whether this situation will continue until 2025, as Ukraine has refused to renew the gas transit agreement with Gazprom.
Currently, this location provides an almost perfect environment for Bitcoin mining. Given that the MGRES power station has substantial power capacity and access to free gas, the motivation to participate in Bitcoin mining is evident. In 2018, the Transnistrian region passed legislation to provide a clear legal basis for accelerating the development of cryptocurrency mining.
In 2019, a state-owned mining enterprise zone called "Tehnopark OJSC" received significant publicity, aiming to attract foreign miners by offering electricity at $0.043 per kilowatt-hour. This is a highly competitive price; according to research by BestBrokers.com, the electricity price in Kazakhstan in 2024 is $0.073 per kilowatt-hour, and in the United States, it is $0.127 per kilowatt-hour. Although there is currently no reliable data, the fact that Transnistria has access to free gas suggests that this price may be the cheapest in the world.
According to BestBrokers.com data, the current electricity consumption per Bitcoin is 854,403 kilowatt-hours (this figure has risen significantly in recent years). Based on these numbers, this means that the electricity cost per Bitcoin in Transnistria is $36,739, while Bitcoin is approximately $97,000. The corresponding figures for Kazakhstan are $62,371 and for the United States, $108,509 (this U.S. figure is the national average; miners may operate in states where electricity is cheaper).
However, since 2019, there has been little further reporting, and the website is no longer online, although it continued to operate until 2022. This does not mean that Bitcoin mining in Transnistria has stopped, but rather reflects that international miners (excluding Russians) have not flocked to Tiraspol as hoped. Therefore, given the wartime conditions and the need for caution, there is no need for publicity.
A report by the Moldovan NGO Anticoruptie indicates that the main mining participants are Goweb International Limited and Tirastel GmbH.
While it is claimed that Western investors are involved, the "investors" are primarily Russians, benefiting from the portion of gas subsidies provided by Gazprom to Transnistria.
Goweb International Limited is an interesting case. The Anticoruptie report states that in January 2018, the British Virgin Islands entity Goweb International Ltd spent $8.7 million to purchase cryptocurrency mining equipment, which was shipped to Transnistria, with funds transferred through Latvia's ABLV Bank. The following month, the U.S. Treasury Department's Financial Crimes Enforcement Network listed ABLV as a target of investigation for "institutionalized money laundering" related to "Azerbaijan, Russia, and Ukraine." ABLV was also at the center of the 2016 "money laundering scandal," in which $1 billion was stolen from Moldova's banks.
The Anticoruptie report states:
"Goweb International Limited is an offshore company managed by a group of businessmen from Russia, led by Nikita Morozov, and is a company specializing in the production and marketing of mining equipment.
The company's official website shows that it has the largest mining capacity in Moldova, at 40 MWh, equivalent to six to eight mining farms."
With Russia's invasion of Ukraine in February 2022, Moscow's ability to sell gas internationally has weakened, and the motivation for the Russian state to repurpose gas for Bitcoin mining has only increased.
How Bitcoin is Used
There is ample reason to believe that Bitcoin mining in the "shadow state," although conducted by private sector participants, operates with the support of the Kremlin. In Transnistria, this connection is particularly evident due to the direct involvement of Igor Chaika. He is nominally the representative of the Russian business organization "Delovaya Rossiya" in Transnistria, but it is well known that he is the de facto head of the FSB in the region.
Chaika is the son of former Russian Attorney General Yuri Chaika (2006-2020), who is closely associated with the Kremlin's abuse of the judicial system. His father currently serves as an envoy for Ramzan Kadyrov, whom Putin sent to Chechnya. Meanwhile, his other son, Artem Chaika, is a businessman who serves as Kadyrov's advisor on "humanitarian, social, and economic affairs"—presumably this role allows him ample time to pursue other interests.
The Balkan Investigative Reporting Network in Chișinău reported in 2018, when the region was in the early stages of Bitcoin mining:
Chaika subsequently told the Russian newspaper "Kommersant" that he hopes to continue advancing the Bitcoin project. "Now there are prerequisites for continuing the advancement." "We agree with the opinion of the head of the Tiraspol administration that once the law comes into effect, the authorities will provide us with the infrastructure for the project. We look forward to their suggestions on the locations for creating mining sites."
"Wired" reported that Chaika "stated he is ready to invest 400 million rubles in cryptocurrency mining in Transnistria."
According to the sanctions imposed by Switzerland's SECO on Igor Chaika in August 2024, he is responsible for funding the Federal Security Service (FSB) of the Russian Federation's destabilization activities in mainland Moldova. The Swiss sanctions statement noted that he works closely with Dmitry Milyutin, the deputy head of the FSB responsible for Moldova affairs. Additionally, Chaika is listed on the sanctions list alongside Moldovan individuals involved in destabilizing the country, including Ilan Shor and Vladimir Plahotniuc, with the citation stating:
"Igor Chaika is a Russian businessman responsible for raising funds for projects aimed at undermining the stability of the Republic of Moldova by the FSB. He plays the role of Russia's 'treasury,' channeling funds to FSB assets in the Republic of Moldova to keep the country under Kremlin control…"
Given Chaika's role since 2018 in establishing Russian-Transnistrian Bitcoin mining cooperation, the resulting Bitcoins are likely to be used to undermine the stability of Moldova.
The use of Bitcoin to support Kremlin subversive actions extends far beyond Moldova. For example, a loophole in the U.S. allows anonymous political donations under $200. Large sums can be automatically split and electronically transferred in small donations, while cryptocurrency adds a layer of anonymity. For instance, in 2020, the Trump campaign raised $378 million in this manner, while the Biden campaign raised $406 million. Neither the campaign teams nor the Federal Election Commission could determine the source of this nearly $800 million in funding.
In 2018, the U.S. Department of Justice indicted Netyksho and others, accusing them of being members or accomplices of the GRU (Russian military intelligence) units 26165 (more commonly known as "Fancy Bear") and 74455 ("Sandworm"). The indictment stated that the organization was responsible for the DCLeaks and Guccifer 2.0 incidents:
"Although the conspirators transacted in various currencies (including dollars), they primarily used Bitcoin to purchase servers, register domain names, and otherwise pay for hacking activities…"
Cryptocurrency is equally effective in evading sanctions and paying for embargoed military equipment. This is especially true when cooperating with partners like India, where banks in those countries can easily face secondary sanctions if discovered. In September 2024, the Financial Times published leaked materials detailing the establishment of an India-Russia "closed" trading route to evade sanctions:
Poida outlined a five-phase plan to help Russia use rupees and establish a stable supply of dual-use components. Russia will create a "closed payment system" between Russian and Indian companies, free from Western oversight, "including the use of digital financial assets"…
In November 2024, the U.S. Treasury sanctioned four employees of the Shanghai branch of VTB Bank Public Joint Stock Company and the New Delhi branch of Sberbank of Russia, likely as a warning to the banking sector. These restrictions are expected to increase the attractiveness of Bitcoin as a settlement method, as it does not expose local banks to risk.
In light of this analysis, Bitcoin mining in Russia's "shadow regions" is an undeniable, profitable, and effectively anonymous way to convert significant power into money. This money can make closely connected Russians wealthy, allowing them to live affluent lives in places like Dubai and Turkey.
It also brings various threats. These threats include undermining the stability of neighboring countries, exerting covert influence on Western democracies, and collaborating with allies like India to facilitate sanctions evasion.
As Ukraine's allies continue to work to limit the Kremlin's funding and resources for its illegal war of aggression in Ukraine, combating this mining activity is a critical priority that requires dedicated efforts. This may include: cyber warfare measures; blockchain tracking of newly minted tokens to expose those associated with illegal Russian activities; sanctions on digital asset platforms that promote mining; and policies to cut off cheap energy in the "shadow regions." Western restrictions often lag behind Russia's evasion strategies; when it comes to the vulnerabilities of Bitcoin mining, the evidence is clear.
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