In Siberia, a crypto boom made of ingenuity, defiance and DIY
Make sense of what’s happening in the financial markets and how Wall Street’s best minds respond, with our Unhedged bulletin. Delivered every weekday.
Despite the quaint lace curtains and flaking blue paint, the little wooden house in Stolbova is not your average Siberian cottage.
It is encircled by motion detectors and 360-degree security cameras. A web of high-power cables slinks on to the grounds from the street. Round the back, hidden behind tall metal fences, two low, barrack-like additions stretch out over land that, in the past, might have been a cabbage patch.
The local electricity company insists this is a clandestine bitcoin mine outfitted with enough costly cryptomining equipment to siphon as much electricity from the grid as at least five normal homes would during a freezing Russian winter.
Stolbova is one of the villages surrounding the Siberian city of Irkutsk, some 5,000km east of Moscow. The region, which experiences extreme swings in temperature (-21.5C in winter, 25.7C in summer), is known for its powerful rivers dotted with Soviet-era hydroelectric dams. Recently, fuelled by cheap power and proximity to the Chinese border, it has also come to be known as the epicentre of a boom in small-scale cryptomining. In 2021, Russia moved up to rank third globally in terms of volume mined, after the US and Kazakhstan.
“All my friends, all my relatives. Everybody is doing it,” Olga tells me. We are standing on a dirt road on the outskirts of the neighbouring village of Granovschina. The 30-year-old pauses to feed a stray dog from a plastic bag of meat and bones. It is November 2021, and I have come to the region to see the boom for myself before crashing bitcoin prices and regulatory crackdown threaten to end it all. Thick electricity cables hang above us. “No one bothers to try and understand what bitcoins actually are,” she continues. “The money just trickles in and trickles in.”
Before walking away, hunched against the cold, she offers some advice: “You’d better hurry up and get involved before this whole thing gets busted.”
Irkutsk’s household miners begin by purchasing an Application-Specific Integrated Circuit device or ASIC, a small, box-like computer dedicated to mining bitcoin. In Irkutsk, ASICs are mostly purchased via messaging app Telegram from informal local traders, who import them from China, the world’s main producer. Prices vary wildly, ranging anywhere from $400 for a basic machine to $13,000 for more advanced, energy-efficient models. An ASIC plugs into a regular household outlet and, with minimal set-up, can start bringing in a stream of extra income every month.
Even if most people have tended to quietly set up a few kilowatts-worth of ASICs at homes, that can have a big impact. “Ten kilowatts on your balcony, and you don’t need to go to work any more,” one farm-owner tells me. (Individuals tend to call themselves miners, but many machines strung together are referred to as a “farm”.) At crypto exchange rates late last year, the average household miner was bringing in about Rbs200,000 per month, he estimates, or about four times the average monthly salary in Irkutsk. “It’s helping to develop a middle class. I’ve even seen sports cars around here,” he says, flashing a grin.
Stepping around the block I find a large, window-sized ventilator cooling a drab and windowless garden shed. I wonder why, in Siberia, someone might need to air-condition a shed?
Jerry-rigged installations like this are pretty common. ASICs produce a lot of excess heat and, across Irkutsk, they are being hooked up to all manner of pipes and radiators by DIYers. This way they also heat apartments, greenhouses, even swimming pools. Such “cryptoboilers” deploy electricity — with a slight detour — for household use, just like any other heater, argues Ilya Frolov, who is often credited as their pioneer in Irkutsk. “It’s my business how I heat my house,” he says. “I could heat it by keeping an iron switched on if I like.”
Elsewhere in Irkutsk, bitcoin-themed graffiti decorates city walls. Corner-shop cashiers talk about ASIC prices on the phone. And everywhere, neighbours moan about power cuts and the constant, low hum coming from miners’ homes. “The city is mining with a vengeance,” the owner of several, larger-scale bitcoin operations tells me. Like many others, he asks to remain anonymous because “the screws are clearly tightening” on the previously unregulated mining world and “some sort of show trial will happen, that’s for sure”.
The Angara river, which flows out of Lake Baikal and through Irkutsk, is home to a string of hydroelectric dams first planned under Josef Stalin to supply power to plants enriching uranium for the Soviet nuclear weapons programme. The region has been flooded with inexpensive power ever since.
Lately, electricity provider Irkutskenergosbyt has accelerated its hunt for illicit power users. “This unexpected, dramatic increase in domestic electricity use, it overloads the network,” deputy head engineer Dmitry Suvorov tells me, sitting in the company’s sky-rise offices overlooking snow-swept Irkutsk. “When the cables are overloaded . . . they start to melt, and the network is short-circuited. Mass outages happen. It can knock out a street, or half a village.”
In the first nine months of 2021, electricity use in the village of Granovschina increased 144 per cent, according to the company. Down the road in Karlyk, it went up 131 per cent last year. In Stolbova, it jumped by 158 per cent according to Irkutskenergosbyt. Power outages have indeed followed these jumps and generated complaints from customers. “They are hunting down miners very actively . . . squeezing them out, fining them,” the farm-owner says of the power company’s increased scrutiny. “They even hang up posters telling people to snitch on their neighbours.”
The company also deploys inspectors. Oleg Gerasimenko, Irkutskenergosbyt’s lead engineer, explains that his crews try to pinpoint houses where power use goes well over the norm of about 440Kw per month per home. Targets picked, they head out into the field armed with heat sensors, wattmeters and, occasionally, drones. They’ve found mining equipment hidden in bushes and backyard trailers, concealed under firewood and tucked behind chicken pens.
Irkutskenergosbyt has started pursuing the most egregious cases in the courts. One person in the village of Khomutovo had two buildings set up, engineers allege, using 300,000-400,000 kW-hours per month, more than a mid-sized factory. “He’s still going. He’s not paying voluntarily,” Suvorov says. “So we’re suing him every month. Every month we go to court and, based on the court’s decision, we get him to pay.”
Irkutskenergosbyt argues that many miners are paying a household tariff for electricity that is used for commercial gain. And in Irkutsk, it’s the household tariff that’s key. It was set as low as Rbs0.86 ($0.012) per kW-hour in rural areas and Rbs1.23 in urban areas for the second half of 2021. The commercial tariff, though still comparatively cheap, is four times higher. It’s this household rate that made mining so profitable when bitcoin prices were high.
Many miners argue that small-scale bitcoin mining should not be considered a commercial activity at all. Others contest that Irkutskenergosbyt, which is owned by sprawling hydropower-to-metals company En+, tied to oligarch Oleg Deripaska, should just give residents a break. (Electricity in Russia is partly subsidised by higher rates for businesses.) “The big energy companies, their owners, people like Deripaska, they don’t like it when the household tariff is used for mining . . . But it’s just a small extra penny for every house,” says Yuriy Dromashko, one of Irkutsk’s most well-known miners. Dromashko runs a YouTube channel called CryptoCapital that’s all about mining in the city.
Dromashko was an early adopter of bitcoin mining in Irkutsk, but he speaks to me by phone from an undisclosed — but glamorous, if you judge by his YouTube videos — location abroad. “They could have turned a blind eye to this. Let people live a bit better, what’s so bad about that?”
About an hour’s drive north of Irkutsk, a “white”, meaning legal, mining hotel has been set up on an industrial site. Hotels allow bitcoin miners to plug in their ASICs and mine paying the commercial rate. Brickwork crumbles and stray dogs roam outside. But inside, shelves are stacked with whirring computers. It’s loud enough to force you to shout over the noise if you want to communicate.
This particular hotel is attached to the local substation owned by the city’s electricity company, recently renamed Siberian Technologies after a tech-inspired rebrand. It’s completely full. There has not been any spare electricity since late 2020, according to the firm. Queues have formed, and customers are offering to pay more than the normal rate just to bag a spot.
The main room at the site uses about 3MW, lead engineer Evgeny tells me during a tour. That’s more than your average factory, or 50,000-person town. All the ASICs together, just under a thousand of them, produce about a bitcoin a day, which is currently worth about $40,000 on global exchanges. “It’s a boom, it’s really a boom,” Evgeny says, as electricians work outside to hook up a new cable to the building’s roof. “This year I also started mining myself. Because you look around and everyone is doing it.” He also wanted some extra income since inflation is raising prices on food and other goods.
He’s only cashed out once so far, however, converting bitcoins to roubles. “I took the money out and bought new doors and windows for the banya,” he says, referring to the wooden saunas that many people build on their land in rural Russia.
Irkutsk’s bitcoin scene was given an additional boost after China cracked down on mining in 2021. The move triggered a sell-off of whole warehouses full of unused Chinese machines. “A lot of equipment became available for purchase. And en masse it all moved to Russia and Kazakhstan,” one Irkutsk importer, who trades Chinese hardware on Telegram, says. Previously, you’d put in an order and wait for six months.
In a letter to Russia’s deputy prime minister last autumn, the governor of the Irkutsk region complained of a recent “avalanche-like growth” in electricity use, straining the grid to breaking point, due to cryptomining. The problem, he said, was “further aggravated by the ban on mining imposed by the Chinese authorities and the relocation of a significant amount of equipment to the Irkutsk region”.
In December, the price of bitcoin began to tumble. It is now about $40,000, down from nearly $60,000 when I was in Irkutsk. Then, earlier this year, Russia’s central bank proposed to ban most operations in the cryptocurrency market, which it described as a financial pyramid. But with an increasing number of influential businesses involved in mining in Russia, the topic looks to be up for discussion for some time. And regulation seems increasingly more likely than a total ban. Still, mining chat groups are speculating on where the mass production could move next.
Even before the most recent developments, the longevity of the bitcoin boom here was on people like Evgeny Zyryanov’s mind. The 33-year-old is sitting in the front room of his Kriptomir shop in Irkutsk, which services cryptomining machines and sells cables and spare parts. A mining machine flickers by his desk.
It produced about Rbs48,000 per month worth of cryptocurrency, at the going rate in November, Zyryanov says, adding that he pays taxes on the income and a commercial electricity rate, so he is happy to talk about it publicly.
With business booming, Zyryanov quit his job in the army in 2021 to run the company full time. Over the course of an hour on a freezing Saturday night, at least a dozen customers come into the store, looking to buy gear or get something fixed. “Agricultural workers . . . Manual labourers, factory workers . . . Everybody is mining,” Zyryanov says. “There are even employees of Irkutskenergosbyt who buy from us,” he adds.
“There’s no panic, it’s still profitable regardless,” Zyryanov says, when I call him in February after the price of bitcoin had almost halved. No one was surprised by the central bank’s report, he claims. “The central bank has never been on the side of alternative currencies . . . But it’s not the one that decides, it can’t make laws,” he says. “It’s not even a ministry.”
Zyryanov tells me he took an online poll of his Irkutsk group and found that 90 per cent of miners said they would continue mining even if the practice was banned. “They will ignore any ban. It’s become unstoppable.” One sign he may be right: the price of ASICs hasn’t changed much and the amount of second-hand equipment is still limited.
Whatever happens, bitcoin mining changed his life “completely”, Zyryanov tells me. It connected him to a global community. It spurred him to develop a local one too, and he now hosts events and runs a bitcoin shisha bar in town, as well as a CryptoPolice project that tries to crowdsource information about local crypto scammers and warn the city’s miners. All of which are still going now.
But his long-term outlook on the future for Irkutsk’s mining scene is glum. “There’s potential,” Zyryanov says, “but we won’t become a Silicon Valley.” Few people are engaging with the theory and technology underpinning cryptocurrencies, he argues. The boom is not sparking any new ideas or projects that could bring long-term development. Instead, people are mining bitcoins like a raw commodity, much like Siberia’s other real-world resources, from coal to gold and oil. “The region is like a poor person who found a million dollars and doesn’t know what to do with it,” Zyryanov says. “Irkutsk was just lucky.”
Polina Ivanova is an FT Moscow correspondent
Follow @FTMag on Twitter to find out about our latest stories first
For the latest news and views on fintech from the FT’s network of correspondents around the world, sign up to our weekly newsletter #fintechFT
Get alerts on Cryptocurrencies when a new story is published
2 комментария для “In Siberia, a crypto boom made of ingenuity, defiance and DIY”
Wonderful site. Lots of useful information here. I’m
sending it to a few friends ans additionally sharing in delicious.
And of course, thank you for your sweat!
An impressive share! I’ve just forwarded this
onto a co-worker who was conducting a little research on this.
And he in fact ordered me lunch due to the fact
that I stumbled upon it for him… lol. So allow me to reword this….
Thanks for the meal!! But yeah, thanks for spending the time to
discuss this issue here on your blog.