Mining in different countries: love and hate of the authorities

Crypto Info
Jul 17, 2019 · 7 min read

According to the Blockchain.com, over the past six months, the hash rate (total power of mining equipment) in the Bitcoin network has constantly grown, setting a new historical record on July 5.

It gives us confidence in the bright future of mining, despite the fact that the authorities of some countries have a very positive attitude to this industry due to the substantial energy consumption of this type of activity.

The latest example of regulatory pressure on the industry has become Iran, which has imposed increased electricity tariffs on local miners.

We took a closer look at the main countries where Bitcoin mining is active, and the measures taken by the authorities over the past few years in relation to the emerging industry.

CHINA

In recent years, China has had intriguing relationships with cryptocurrencies. The government has taken a tough stance on trading in digital assets and attracting investment by local companies through the Initial Coin Offering (ICO).

However, as we already wrote earlier, today the attitude of the authorities to cryptocurrencies is changing against the background of the intensifying trade war with the United States and numerous American sanctions — the local media even calls Bitcoin a “safe haven” for citizens against the backdrop of a difficult economic situation in the world.

Despite numerous bans, China remains the center of mining. This country is a major player in the Bitcoin global hash rate — according to the latest data, Chinese mining pools earns 70% of the total world volume of new coins.

The reason for this dominance is largely due to the huge excess of electricity in the country. This is most evident in Sichuan province, which is considered the capital of China’s mining of cryptocurrencies, especially during the rainy season, when local hydroelectric power plants generate an incredible amount of electricity. Electricity producers even urge to start mining Bitcoin to sell unused energy.

China’s dominance in this context can be violated if the rules proposed back in April 2019 are enacted, according to which mining in the country will be banned.

This is a potentially dangerous blow to the country in which companies such as Bitmain and Canaan Creative, the giants of the world mining industry, operate.

The main reasons for the negative on the part of the Chinese authorities are environmental problems and the lack of tax revenues to the treasury from this industry.

USA

The United States has a strong cryptocurrency mining infrastructure, helped by a rather pragmatic approach to regulation in the country.

The United States Commodity Futures Trading Commission (CFTC) classified Bitcoin as a commodity in September 2015, and it is still considered as such. There are no specific restrictions on mining activities, while several states generally use different approaches to cryptocurrency.

For example, the city of Plattsburg in New York banned the mining of cryptocurrency in March 2018. This happened after local residents began to complain about the growth of electricity bills as a result of the activities of farms near the hydroelectric plants.

CANADA

Canada is open to the crypto industry and does not prohibit mining in the country. The government classifies Bitcoin as a commodity, so users pay taxes depending on how they acquire and use cryptocurrency. If a Canadian gets Bitcoin as income, he is taxed as such, and if he holds it as an investment asset, he is obliged to pay capital gains taxes.

Mining is also taxed, depending on whether this activity is a business or a personal hobby.

The main catalyst for positive growth to mining was the work of the electricity supplier Hydro-Québec and the Canadian government’s energy regulator Régie de l’énergie. In May 2018, the Quebec government lifted a moratorium on the sale of electricity to cryptocurrency mining operators. At that time, more than 100 potential mining enterprises applied for the purchase of electricity from Hydro-Québec with a stated energy consumption exceeding 10 terawatts per hour. Hydro-Québec operates 60 hydropower plants, which at that time produced an excess of about 13 TWh.

RUSSIA

Russia, where a huge number of miners are concentrated, still does not have a certain regulatory position in this context. Bitcoin is not regulated, but its use as a method of payment for goods and services is illegal. The regulatory framework for the industry should appear in the summer of 2019, when the draft law on “Digital financial assets” will be adopted.

Recall, President Vladimir Putin and the FATF have obliged the government to decide on the regulation of industry in the country until July, which, by the way, has already arrived.

Now the country continues to produce cryptocurrency, which contributes to the cold climate most of the year and relatively cheap electricity.

Earlier there was information that in Russia they can introduce fines for mining, however, the Ministry of Finance later refuted such rumors.

Anatoly Aksakov, Chairman of the State Duma Committee on Financial Markets, said that cryptocurrencies created on open blockchains are considered illegitimate. At the same time, the official stressed that it is legal to keep Bitcoin in Russia if the cryptocurrency was acquired outside the country.

According to the latest data, the Central Bank and the Ministry of Finance are discussing the issue of a possible resolution of the sale and purchase of cryptocurrencies in the country — by the type of foreign currencies. However, the use of such assets as a settlement tool is illegal and not negotiable.

IRAN

The Iranian government has taken a tough stance against the mining industry in the country due to a significant increase in electricity consumption over the past month. The Iranian Ministry of Energy believes that cryptocurrency mining is “to blame” for a 7% surge in electricity consumption in the country. Therefore, it was decided to revise the tariffs for miners with a course to increase.

Currently, Iranians use government subsidies that bridge the gap in consumer bills and their actual electricity cost. It provides miners with favorable conditions for doing business.

In September 2018, the Bitcoin mining ecosystem received regulatory approval after a number of Iranian government departments officially recognized crypto-mining as a legitimate industry in the country. This is expected to be smoothed over by a formal regulatory framework.

Given the growth of mining and profitability of mining in Iran, the country’s Deputy Minister of Energy, Homayoun Haeri, suggested that the bills for mining new coins should be the same as the cost of exporting electricity.

Despite the positive sentiment that accompanied the cryptocurrency industry at the end of 2018, the blockchain industry in Iran will have to go through several months of uncertainty until new Iranian tariffs are approved by the government.

Tighter regulation of the mining industry is very illogical, because Iran considers cryptocurrencies as a possible means of circumventing tough US economic sanctions that impede trade with the world community.

CZECH REPUBLIC and ICELAND

It is worth noting the Czech Republic, as here is Slushpool, one of the largest mining pools in the world, which holds 7.5% of the total hashrate. The Czech government does not consider Bitcoin legal tender and classifies cryptocurrency as an intangible asset.

Similarly, Iceland has become the center of cryptocurrency mining, given its cold climate and the abundance of renewable energy sources, and the regulatory component of the industry has not yet been determined.

In conclusion

The main factor in the location of large mining farms is the availability of affordable electricity and a cool climate for cooling equipment.

However, the regulatory approach of the authorities is also fundamental to the industry — if the climate is a thousand times suitable for mining cryptocurrencies, and the cheapest electricity in the world — a state legislative ban can turn the “tidbit” for miners into an “impossible dream”, and the field for action will have to be look in other countries.

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