Regulatory Overview of Crypto Mining in Different Countries

A move by the Iranian government to cut off the power supply to local Bitcoin (BTC) miners grabbed headlines in June amid a soaring price gain by the preeminent cryptocurrency. As Bitcoin surged to prices not seen since 2017, a rising hash rate mirrored renewed interest in the cryptocurrency. By July 1, the Bitcoin mining hash rate surpassed 69 quintillion hashes per second.

Nevertheless, the action by Iranian officials is a stark reminder that regulatory moves can still hold sway over the use of cryptocurrencies around the world. The Bitcoin mining space has marched on over the last two years through the depths of a humbling and harsh environment for the entire cryptocurrency space. 

According to data from Blockchain.com, the Bitcoin mining hash rate has been on a steady increase over the last six months:

These are encouraging signs for the mining ecosystem despite pressures on a number of fronts. Price volatility and regulatory efforts have been notable obstacles. With this latest instance of regulatory pressure on cryptocurrency mining in Iran, Cointelegraph takes a deeper look at the major countries that have extensive cryptocurrency mining activity and the stances they have taken over the past few years toward the emerging industry.

China

China has had an intriguing relationship with cryptocurrencies over recent years. Its government has taken a hard line toward cryptocurrency trading, with financial institutions by banning Bitcoin trading, initial coin offerings (ICOs) and crypto exchanges.

Despite the status quo, China’s Bitcoin mining scene is a major player in the global hash rate, with China-based mining pools reportedly mining potentially 70% of all the coins created yearly. Furthermore, the global Bitcoin mining pools are dominated by Chinese ones. The reason for this dominance is largely due to the massive surplus of electricity in the country. This is most evident in the Sichuan province, which is considered to be the Bitcoin mining capital of China. It has been reported that this surplus of electricity has led to various power producers encouraging companies to set up mining operations in order to exploit untapped energy. 

The dominance of China’s Bitcoin mining contingent could be disrupted if the regulations that were suggested back in April of 2019 come to fruition, with a government agency lobbying to ban crypto mining outright in the country. 

It is a potentially damning blow for a country that is home to the likes of Bitmain, the producer of the world’s most popular ASIC miners. The company also has its own mining operations setup in the country.

Various reports in 2018 also suggested that many mining operators were looking for greener pastures overseas amid growing pressure from the Chinese government. It is understood that environmental concerns and a lack of tax revenue are driving factors of the apathy toward crypto mining in China.

Russia

Russia has a more lax approach to Bitcoin and cryptocurrencies in comparison with China — in that it still does not have a definitive regulatory stance on the space. Bitcoin is not regulated, but its use as a payment option for goods and services is illegal. This is set to change in the summer of 2019, as the Digital Financial Assets bill is expected to come into effect.

Up until this point, cryptocurrency mining has continued in the country, with the cold climate and cheap electricity as contributing factors. However, a report in June suggests that cryptocurrency mining operators could face fines in the future.

Anatoly Aksakov, the chairman of the State Duma Committee on Financial Markets, told local media outlet TASS that the cryptocurrencies created on open blockchains were considered illegitimate. At the same time, Aksakov stressed that it is not illegal to hold Bitcoin in Russia if the cryptocurrency has been bought or acquired outside of the country.

Iran

As Cointelegraph reported earlier this week, Iran’s government has taken a stern stance toward the crypto mining industry in the country due to a massive increase in electricity usage over the past month. The Iranian energy ministry believes that mining operations are to blame for an irregular 7% spike in electricity consumption amid fears of its grid is taking undue strain and intends to cut power to crypto mining operators until it has approved new energy tariffs.

Iranians currently benefit from government subsidies, which reportedly bridge the gap of how consumers are billed and what their actual electricity costs are. It is a situation that has provided a favorable environment for crypto miners. The mining ecosystem received a regulatory stamp of approval in September 2018 after a number of Iranian government departments officially accepted crypto mining as a legitimate industry in the country. This is expected to be ironed out by formal regulatory and legal frameworks.

Related: CBDCs of the World: The Benefits and Drawbacks of National Cryptos, According to Different Jurisdictions

Given the increase in mining activity and the profitability in Iran, the country’s deputy energy minister, Homayoun Haeri, suggested that the billing of mining operations should be the same as charges for power exports in June 2019. Despite the positive sentiment that was portrayed at the tail end of 2018, the crypto mining scene in Iran will have to endure a few months of uncertainty until the new electricity tariffs are approved by the Iranian government. It is a blow for a country that is looking to cryptocurrencies as a possible means to bypass harsh economic sanctions that have hampered its ability to trade with the global community.

Canada

Canada has positioned itself as a crypto-friendly country that is openly providing opportunities for cryptocurrency mining operations to set up shop. The country has classified Bitcoin as a commodity, which makes users liable to pay tax, depending on how they acquire and use the cryptocurrency. If a Canadian receives Bitcoin as income, it is taxed as such, and if they hold it as an investment asset, they are liable to pay capital gains taxes.

As Cointelegraph contributor Selva Ozelli noted in an expert take last year, cryptocurrency mining is also taxed, depending on whether the operation is run as a business or a personal hobby. The latter is considered a nontaxable event. While the trade and use of cryptocurrencies are welcome but controlled in the country, the mining scene has been nurtured to a far greater extent.

A major catalyst for this has been the work of electricity provider Hydro-Québec and the Canadian government’s energy regulator, Régie de l’énergie. In May 2018, Quebec’s provincial government lifted a moratorium on the sale of power to cryptocurrency mining operators. At the time, over 100 potential mining operations had applied to purchase power from Hydro-Québec with reported energy consumption in excess of 10 terawatts per hour. Hydro-Québec runs 60 hydroelectric power stations, which, at that time, produced a surplus of around 13 TWh.

In June 2018, Hydro-Québec then introduced rules that required prospective cryptocurrency mining companies to bid for electricity. Their request would need to be substantiated by business cases, which specified jobs and investments that would be generated by their specific operations. Part of these rules would allow Hydro-Québec to enforce load-shedding on mining operations during periods of increased power demand from the province. 

Within a couple of months, the energy supplier had to halt the processing of requests from miners due to the massive demand from the industry, which exceeded the provision of electricity at the time. Almost a year later, in April 2019, the Régie de l’énergie released new rules for the sector that have essentially ironed out the process for cryptocurrency miners to gain access to electricity.

Hydro-Québec was ordered to allocate 300 megawatts to the blockchain industry over and above the 158 MW that it had already been providing to its existing customers, along with 210 MW supplied by municipal distributors. In order to gain access to this allocated power, mining companies have to pass a selection process. The main criteria include jobs created, payroll of these jobs, the value of investments as well as heat recovery.

The Czech Republic and Iceland

The Czech Republic is worth noting, as it is home to Slushpool, one of the biggest mining pools in the world. The pool accounts for 7.5% of the total hash rate distribution. The European country is fairly relaxed in terms of its regulatory stance toward Bitcoin and cryptocurrencies as a whole. The Czech government does not consider Bitcoin as legal tender and classifies the cryptocurrency as an intangible asset.

Related: Safe Space: A Guide to Special Economic Zones for Crypto, From China to Switzerland

Likewise, Iceland became a hub for cryptocurrency mining, given its cold climate and abundance of renewable energy sources. In February 2018, it was speculated that the electricity usage of the industry would surpass the total amount of energy used by households in the country. At that time, Genesis Mining was reported being the biggest energy consumer in Iceland.

The United States

America also has a strong mining culture that has been enabled by a fairly pragmatic regulatory approach in the country. The U.S. Commodity Futures Trading Commission (CFTC) classified Bitcoin as a commodity in September 2015, and it is still treated as such. There are no specific restrictions on mining activity, while several states have taken different lines of approach to cryptocurrencies in general.

The city of Plattsburgh in New York could well be the only place in America that has formally banned cryptocurrency mining back in March 2018. This occurred after local residents began to complain of rising electricity bills as a result of cryptocurrency mining in the area. The city is located near a hydroelectric dam that provides cheap electricity. In March last year, the biggest mining operator in Plattsburgh reportedly used 10% of the city’s 104 MWh power supply. As a result, the Plattsburgh city council enforced an 18-month cryptocurrency mining ban.

A report from Crescent Electric Supply Company last year identified the cost to mine one Bitcoin in relation to the cost of electricity in each U.S. state. Louisiana was identified as the cheapest location to mine the first cryptocurrency. It was followed by Idaho, Washington, Tennessee and Arkansas. GigaWatt, the largest mining farm in the U.S., is situated in Washington.

A global phenomenon

The countries mentioned above have significant mining activities, but the truth is that cryptocurrency mining has become a global phenomenon. The major factor in the location of large mining farms is the availability of affordable electricity. Following that, the climate also plays a role. European countries and places like Canada have the added benefit of being in cold environments, which makes the cooling of equipment a straightforward endeavor.

The nature of Bitcoin mining, in particular, demands an increasing amount of power as the mining pool grows. The difficulty is constantly adjusted every 2016 blocks to ensure that one block is mined around every 10 minutes. This means that mining could potentially use more energy over time, as more miners vie to verify transactions and receive the BTC reward after mining a block.

Late in 2018, a study suggested that the total electricity usage of global cryptocurrency mining had surpassed that of mineral mining. This is a fact that has led to heavy criticism over the past two years. Some of these concerns have been abated by another report in June 2019 that suggests that as much as 74% of Bitcoin mining is powered by renewable energy sources. This will continue to be a hotly debated topic and will no doubt continue to be a consideration for mining operators around the world.