Mining
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The rise in prices in the cryptocurrency market provokes illegal miners to increase their power and look for new ways to use someone else’s electricity.
The rapid growth of the crypto market after its November lows affects the expansion of all areas of the cryptocurrency industry, including the mining process that is fundamental to it. Leading Russian mining companies are increasing their equipment capacity. But growing profits inevitably attract those who want to make money on cryptocurrency mining, using loopholes in the legislation or relying on other people’s resources.
Last week, news was widely reported that during a fire safety check in the Irkutsk region, two mining farms were discovered in the attic of a psychiatric hospital. The police confiscated the equipment, and the prosecutor’s office opened an administrative case and submitted a submission about improper control over the targeted spending of budget funds.
The Irkutsk region is one of the most popular regions among miners due to low electricity tariffs. In addition to the industrial production of cryptocurrency, in the region, many residents are also engaged in mining in residential buildings and other places where the power grid is not adapted to increased loads, which leads to overloads and accidents. In 2022, energy sales organizations sent more than 400 claims to the prosecutor’s office for recovery from citizens using mining equipment. The courts made positive decisions in the amount of about 100 million rubles.
“Household” mining
The activation of “gray” miners often coincides with a change in market conditions, comments Igor Rylnikov, commercial director of EMCD. In January 2023, the income of bitcoin miners increased by 50% due to the rise in price of the cryptocurrency to $24,000. Miners began to increase their capacities, that is, connect new equipment, and its cost has already increased by an average of 15-20% compared to the end of 2022. Not surprisingly, illegal miners are also connecting new capacities in order to increase income, Rylnikov explains.
The very concept of “illegal mining” is now absent as such, since mining itself has not yet been introduced into the Russian legal field, has not been regulated by law. There are individuals involved in mining who do not pay for electricity at all, says Oleg Ogienko, director for government relations at BitRiver.
“In fact, this is the theft of electricity, for which, depending on the damage caused and other criteria, administrative, civil or criminal liability is established,” the expert adds.
When there is a large systematic consumption of electricity for mining solely for profit, and it is paid at tariffs for the population (that is, significantly lower than tariffs for businesses), the amount of so-called cross-subsidization in the electric power industry increases. According to a BitRiver representative, this negatively affects the energy system and industry – enterprises incur additional costs in the form of fees for this volume.
In addition, initially household electrical networks are not designed for a round-the-clock heavy load, which is why small-scale “household” undeclared mining provokes emergencies that power engineers are forced to eliminate. Resources for the development of networks for household mining are not included in the tariffs, which leads to losses for power grid organizations.
As Rylnikov notes, with the illegal placement of mining farms of any format, the risks associated with fire safety increase significantly. In objects unsuitable for mining, whether residential buildings or any commercial areas, as a rule, there are no reinforced power lines capable of withstanding significant loads, and modern fire extinguishing systems are often not installed.
Laws and tariffs
The so-called “mining law” is under consideration by the Russian government. The authors of the bill are awaiting a decision, and the leading players in the Russian industry agree that the government’s course towards regulation and legalization of the sphere as a whole contributes to its improvement.
According to Rylnikov, the authorities are aware of the risks of illegal mining and are already developing appropriate legislation. For example, in January 2023, the State Council Energy Commission proposed a complete ban on mining in residential buildings to prevent fires and de-energize facilities due to power grid overload.
According to Ogienko, the solution to the problem of illegal mining is connected, among other things, with tariff regulation. The introduction of differentiated electricity tariffs for those involved in the production of cryptocurrencies, as well as the registration of their equipment at the hardware and software level, can lead to the regulation and legalization of the industry, the expert notes.
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