Last year was cargo Containers have started appearing near a substation connected to the recently constructed Grand Ethiopian Renaissance Dam, Africa's largest. Inside were stacks of powerful, energy-hungry computers.
This marks the arrival of Chinese Bitcoin miners in the Horn of Africa, who have been hopping from country to country in search of cheap electricity and lenient regulations since the Chinese government banned them two years ago. It was a clear sign that.
Faced with political and economic headwinds, they were lured by some of the lowest electricity prices in the world and an increasingly friendly government. Ethiopia has allowed Bitcoin mining since 2022 despite still banning crypto trading, has strengthened ties with China over the past decade, and miners plan to supply electricity Several Chinese companies supported the construction of the US$4.8 billion dam.
As climate change and power shortages push back against the $16 billion-a-year industry elsewhere (at Bitcoin's current price), Ethiopia has emerged as a rare opportunity for any company mining an original cryptocurrency. ing. But it has special appeal for Chinese companies that once dominated bitcoin mining but are now struggling to compete with local rivals in Texas, where they are based.
This is a risky gamble for companies and Ethiopia alike. Developing countries such as Kazakhstan and Iran initially embraced Bitcoin mining, but turned to the sector as energy usage threatened to fuel domestic discontent. China's reign as a center for Bitcoin mining came to an abrupt end in 2021 when the government banned Bitcoin mining. Dozens of companies were forced to withdraw.
“Firstly, countries may run out of available power, leaving no room for miners to expand,” said Jaran Mererud, CEO of Hashlabs Mining. “Second, miners could suddenly be deemed unwelcome by the government and forced to pack up and leave.”
I'm on guard
Ethiopian authorities are wary of controversy surrounding Bitcoin mining, according to industry executives who spoke on condition of anonymity to avoid souring government relations. Even after new generation capacity comes online, nearly half of the population lives without access to electricity, making mining a sensitive topic. At the same time, this is also a potentially lucrative source of foreign exchange earnings.
Ethiopia has already emerged as one of the world's largest recipients of Bitcoin mining machines, according to estimates by mining service provider Luxor Technology. This is despite the fact that the first major deal to ship equipment in Luxor was closed in September, Chief Operating Officer Ethan Vella said.
The national power monopoly announced that it has signed power supply contracts with 21 Bitcoin miners. All but two are Chinese.
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“Ethiopia will become one of the most popular destinations for Chinese miners,” said Nuo Xu, founder of the China Digital Mining Association, which organizes the exhibition and facilitates trade in mining equipment. . He is arranging a trip to Ethiopia for a group of Chinese mining executives to tour potential sites.
The fact that Bitcoin miners are willing to ship tens of millions of dollars worth of equipment to a country that emerged from a civil war in the north just two years ago suggests that the political and economic environment in which they exist is dangerous. proves the situation.
These companies perform the critical task of maintaining the Bitcoin network by using powerful computers (or “rigs” in industry parlance) to solve mathematical puzzles and verify encrypted transactions on the blockchain. playing a role. In return, they are rewarded with Bitcoins released by the network.
This is a volatile business, with returns tracking the rise and fall of the token. Miner Core Scientific fell into bankruptcy in December 2022 due to the collapse of the cryptocurrency market. Thirteen months later, it won court approval to exit Chapter 11 after the price of Bitcoin soared nearly 150%.
Rigs use a significant amount of power, so having access to cheap power is a key competitive advantage. According to estimates by the Cambridge Center for Alternative Finance, Bitcoin mining will consume 121 TWh of electricity in 2023, similar to the amount used in Argentina. Electricity can account for up to 80% of a miner's operating costs, Mellerd said.
This explains why, over the past few years, miners have primarily decided where to install much of their equipment. First China, then Iran, Kazakhstan, Russia, northern Sweden, and most recently Texas. What these places have in common is that energy is relatively cheap.
Dependence on abundant electricity is also a major vulnerability, as it exposes miners to competition for power with factories and households, and can expose them to political backlash.
When Kazakhstan imposed new curbs and taxes on miners, “it basically decimated the industry,” said HashLab co-founder Allen Makhmetov. It's been two years since the crackdown, and his 10MW facility there is still unoccupied.
And at a time when rising temperatures are wreaking havoc around the world, Bitcoin mining is increasingly seen as contributing to global warming without serving any productive purpose. This is despite claims that they are increasing the use of clean energy. A study published in October by the United Nations University estimated that two-thirds of the electricity used for Bitcoin mining in 2020 and 2021 was generated using fossil fuels.
forex windfall
The main reason the Ethiopian government has allowed Bitcoin mining is because companies are paying for the electricity they consume in foreign currency, Yodaje A. Zemikhail, deputy director of the Information and Network Security Agency, said in response to a question. In his written response, he used terms such as “high performance computing” and “data mining” instead of bitcoin mining.
“Ethiopia is highly regulated,” said Nemo Semlet, CEO of QRB Labs, a local mining company that helped lobby authorities to allow bitcoin mining. “Introducing such a new field is a big challenge and we have been working for the past two years to obtain all the necessary permissions from the government.”
According to Yodaje, the government has adopted a directive regulating “crypto products,” including mining. He added that the issuance of licenses “is happening in a sandbox and is at an early stage,” without disclosing how many permits have been granted so far.
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Semret said there remains uncertainty among miners about how authorities will oversee them in the long term, and Yodaje declined to say whether the directive had been shared with industry stakeholders. Ta.
But for Bitcoin miners, especially those in China, Ethiopia offers a unique blend of economic and political advantages. Some executives say it could become a rival to Texas, which accounts for a quarter of the world's Bitcoin production capacity.
Africa's power supply capacity for Bitcoin production could rival that of Texas within a few years, according to a senior executive at Beijing-based company Bitmain, a major supplier of rigs. With the launch of the GERD project, Ethiopia's installed power generation capacity will increase to 5.3GW, of which 92% will come from hydropower, a renewable energy source.
According to Ethiopian Electric Power, when GERD is fully completed, Ethiopia's power generation capacity will double. Hiwot Eshetu, director of marketing and business development, said in an interview that Bitcoin miners are charged a fixed fee of 3.14 US cents per kilowatt-hour for the electricity drawn from their substations.
That's similar to the Texas average, but interest rates in the Lone Star State can fluctuate widely, making the state's profits difficult to predict, Luxor's Mr. Vera said. In Ethiopia, Hiwot said, prices go down when miners connect directly to power plants. He added that the EEP had suspended the awarding of new contracts “to ensure that the process is properly managed”.
advantage
BWP, which hosts machines operated by miners from China and other countries, began shipping machines to Ethiopia early last year. In December, the company announced on X that it would open a 120MW data center for mining equipment in the capital, Addis Ababa, which is quite large by Texas standards.
CEO Vitaly Borshenko said Ethiopia's advantages go beyond cheap renewable power.
“The ideal temperature for miners is between 5 and 25 degrees Celsius,” he said, citing recommendations from rig manufacturer Bitmain. “This is within the average temperature range for Ethiopia.” Addis Ababa is about 2,400 meters above sea level, much higher than most Alpine ski resort towns.
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Xu, from the China Digital Mining Association, said this attraction is why some Chinese companies are starting operations without waiting for an official green light. “Miners are masquerading as factories and agricultural companies” to obtain electricity rather than seeking government approval to create bitcoin, he said without giving his name. Yodahe did not respond to requests for comment on these actions.
Their confidence is supported by geopolitics. China is Ethiopia's largest source of foreign direct investment and its largest bilateral creditor. Ethiopia's Ministry of Finance announced in December that the Chinese government and financial institutions had loaned about $15 billion to 70 “megaprojects” in African countries between 2006 and 2018.
Ethiopia was one of 17 countries that strengthened ties with China last year as President Xi Jinping courted partners from the Global South. In October, Mr. Xi invited Ethiopian Prime Minister Abiy Ahmed to Beijing and elevated the bilateral relationship to an “all-weather strategic partnership,” according to state-run Xinhua news agency.
The Horn of Africa country is in dire need of an influx of foreign currency. The company is negotiating for relief from the International Monetary Fund after it defaulted on interest payments to private creditors in December. Last month, it reached an agreement with bilateral creditors to suspend payments.
Given China's rise in Africa, Chinese Bitcoin miners are also starting to look to countries such as Angola and Nigeria, Xu said.
“Chinese miners have no problem building sites in Africa,” he said. “This is like another province in China.” — David Pan and Fasika Tadesse, (c) 2024 Bloomberg LP