Chinese Miners Relocate to Ethiopia, Bloomberg Reports

Chinese miners are increasingly choosing Ethiopia as their next hub for operations, following Iran and Kazakhstan, according to Bloomberg.

The African nation has banned cryptocurrency trading but approved mining since 2022.

According to the publication, 19 out of 21 companies that have agreements with the state energy monopoly Ethiopian Electric Power (EEP) are Chinese.

After the effective ban on mining in China in May 2021, a significant portion of the business has been forced to relocate outside the country. Africa, and specifically Ethiopia, has become one of the destinations for these activities.

Attractive Conditions for Mining Operations

The country attracts with cheap electricity, 92% of which is generated by hydropower. Following the construction of the Grand Ethiopian Renaissance Dam (GERD) with Chinese investments of $4.8 billion, generation reached 5.3 GW.

According to ASIC miner manufacturer Bitmain, the opening of GERD allows Ethiopia to potentially compete with Texas as a power supplier for bitcoin mining in the coming years. The American state’s share in the global hash rate of the first cryptocurrency is estimated at 25%.

According to EEP, the fixed tariff for industry participants in the African country is $0.0314 per kWh. Luxor’s COO Ethan Vera confirmed that this is comparable to electricity prices in Texas, although they can fluctuate significantly due to seasonal demand.

An EEP representative stated that the tariff for miners will decrease further after the full launch of GERD. He added that the state company has suspended new contracts with cryptocurrency miners “to ensure a well-controlled and managed process.”

According to Hashlabs Mining CEO Jaran Mellerud, electricity costs can account for up to 80% of the total expenses for cryptocurrency mining.

BitCluster CEO Vitaly Borshchenko highlighted another attractive factor for mining in Ethiopia—the climate. Bitmain recommends an ideal operating temperature for installations between 5°C and 25°C, which matches the conditions in the capital Addis Ababa, located at nearly 2400 meters above sea level.

The company has already opened a mining data center in the country with a capacity of 120 MW.

We are pleased to be one of the first to launch a BTC #mining facility in this beautiful country ?

The advantages of #Ethiopia ?? will allow us and our clients to overcome the halving smoothly. https://t.co/0hscDp7tZG

— BitCluster (@bit_cluster) February 9, 2024

Luxor noted that Ethiopia has recently become one of the world’s main importers of bitcoin mining equipment.

Risks of Mining Business in Developing Countries

One of the main reasons the government allowed mining is that industry participants pay for electricity in foreign currency, admitted Yodah Zemichel, Deputy Director of the Network Information Security Administration. However, he preferred to use terms like “high-performance computing” and “data collection” to describe cryptocurrency mining activities.

“Ethiopia is very heavily regulated. Promoting a new sector like this was a challenging task. We have worked over the past two years to obtain all the necessary government approvals,” said QRB Labs CEO Nemo Semret.

The local mining firm has largely acted as a lobbyist for the industry among officials.

Zemichel explained that the government has issued a directive to regulate “encryption products,” including mining. He added that the issuance of licenses “is happening in a sandbox and is at an early stage.” He declined to disclose the number of approvals granted.

Semret noted that miners remain uncertain about how authorities will oversee the industry in the long term.

Ethiopian officials, speaking anonymously to Bloomberg, expressed concerns about the impact of mining development on internal stability. The energy-intensive industry is expanding in a country where less than 50% of the population has access to electricity.

After the ban in China, Kazakhstan became one of the main destinations for local miners. Interest in the jurisdiction continued to grow even after the introduction of additional electricity charges.

However, the country faced an energy deficit and the need to restrict bitcoin mining activities. Miners began leaving the jurisdiction due to power supply issues for data centers. The process was accelerated by industry restrictions and tighter regulations.

This largely “killed” the industry in the country, according to Hashlabs co-founder Alen Mahmetov. The firm’s 10 MW facility in Kazakhstan has been idle for two years.

Previously, Chinese miners turned their attention to Iran as a jurisdiction with cheap electricity. After power supply disruptions, allegedly caused by bitcoin mining, authorities banned their operations for several months in 2021. Restrictions were imposed subsequently as well.

Mellerud highlighted the risks of establishing businesses in developing countries:

“Firstly, accessible electricity may run out, leaving no room for expansion. Secondly, miners may suddenly become unwelcome by authorities, leading to the need to pack up and leave.”

According to Bloomberg, Chinese miners’ confidence in Ethiopia is fueled by geopolitics. From 2016 to 2018, Beijing invested nearly $15 billion in 70 “mega-projects” in the country. The nations maintain close relations at the highest political level. Meanwhile, Ethiopia is in dire need of foreign currency inflows to pay off debts.

For these reasons, Chinese miners are also considering other jurisdictions on the continent, such as Nigeria and Angola, noted China Digital Mining Association head Nuo Xu. The organization assists them in relocating their business abroad.

“Chinese miners have no problem building facilities in Africa. It’s like another province of their country,” concluded Xu.

Media reports have revealed how China continues to generate up to 20% of bitcoin’s hash rate despite the mining ban.