Yesterday afternoon, US government added one of the largest Russian Bitcoin Mining Hosting company BitRiver on its sanction list. Here is a press release directly from US Treasure Site.
The government claims that this step is taken to target Russia’s Crypto Currency mining industry and that these companies are using Russia’s natural resources for competitive advantage.
“Treasury is also taking action against companies in Russia’s virtual currency mining industry. By operating vast server farms that sell virtual currency mining capacity internationally, these companies help Russia monetize its natural resources. Russia has a comparative advantage in crypto mining due to energy resources and a cold climate. However, mining companies rely on imported computer equipment and fiat payments, which makes them vulnerable to sanctions.
The United States is committed to ensuring that no asset, no matter how complex, becomes a mechanism for the Putin regime to offset the impact of sanctions.”
This move however is significantly hurting US citizens, businessmen and entrepreneurs in the Bitcoin mining industry, costing them hundreds of thousands of dollars, while at the same time increasing income for Russians.
How are these US Sanctions on Russia Bitcoin mining industry hurting US citizens?
Bitriver is knowns as one of the largest bitcoin mining hosting companies. What it means is that it rents out it’s space and electricity to people all around the world. These people then buy Bitcoin miners and place them in Bitriver warehouses. Bitriver makes money on renting the space out, and it’s customers make money by earning Bitcoin mined.
The issue is that a significant number of Bitriver customers are US citizens or citizens of other countries like Australia or Germany. These customers spent hundreds of thousands of dollars to purchase these miners, and are bringing income to their home countries through Bitcoin mining.
After the sanctions were implemented, these people now have to stop working with Bitriver. And their mining equipment is stuck in Russia. So potentially losing hundreds of thousands dollars thanks to these sanctions. These US sanctions on Russian mining industry are hurting the US middle class.
How are these US Sanctions on Russia Bitcoin mining industry helping Russians and Russian Oligarchs?
Now that the miners are stuck in Russia, the customers of Bitriver can’t operate and earn income from them. So what is the solution? They can try to sell these miners in Russia, to other people. That is exactly what Compass Mining company is trying to do for their customers.
According to official Compass mining discord channel and Compass CEO, this is exactly the plan. Here is a full statement from the CEO Whit Gibbs:
“Due to recent sanctions by the US, Compass Mining is required to immediately cease all dealings with BitRiver, our Russian hosting partner. Notice will be sent to BitRiver today to terminate all hosting contracts, effective immediately. Machines will be turned off today and they will not be turned back on. At this time, it is not possible to export any of the machines from Russia.
Rather than take a total loss, Compass is making all commercial efforts to liquidate the hardware for our customers and return to them whatever funds we can obtain for the sale of these machines. We cannot guarantee that the machines will sell, but we are doing our best to make this happen. Customers will receive a formal notice of contract cancellation and be prompted to authorize Compass to sell hardware on their behalf. Upon receipt of this notice, customers will have 48 hours to notify Compass that these machines can be sold. If a customer fails to provide authorization in that window, the responsibility will fall to the customer to follow up directly with the facility to find a solution for their machine. I strongly advise against this course of action as it is highly unlikely a resolution outside of our option will be had.
While we have always advised that hosting outside of North America comes with additional risk, this is a terrible turn of events to put it mildly. Unfortunately Compass cannot legally do any more than what is stated above.”
I want to focus on the Bolded statement from above: “Rather than take a total loss, Compass is making all commercial efforts to liquidate the hardware for our customers and return to them whatever funds we can obtain for the sale of these machines. We cannot guarantee that the machines will sell, but we are doing our best to make this happen.”
So Compass mining will be trying to sell these miners, mostly owned by US customers, so these customers don’t lose all of their invested money thanks to these sanctions.
At the same time, Compass employees agree that these will have to be sold for very cheap and definitely under the market value of these miners. Since the situation is very in favor of Russians in this case, Compass Mining does not have a great negotiation position. Even Compass mining CEO agrees that these sanctions will not hurt Bitriver. The company will be fine. It will be the US customer that will bear the consequences
The reason why Russians will actually profit out of this is that they will get to buy Bitcoin miners for extremely cheap from frustrated and scared US customers. And then they will use these miners to mine BTC, which will just increase the revenues for Russians and improve their financial position.
And who will buy these miners from US customers in Russia – well people in Russia who have money. So not regular people who barely survive. But rich people, oligarchs, who will have amazing opportunity to improve their position even more. So all in all, the people suffering the most from these sanctions are regular people.
So how much are we talking about here?
It is impossible to speculate on how many miners in Bitriver possession is owner by foreigners. But Compass mining itself has around 4000 Bitcoin miners in Bitriver facilities:
For the simplicity of calculation, let’s assume these are all 100TH miners. These miners market price currently, when already connected and ready to mine, is around $8000-$11000 per one, depending on the age etc…
So assuming each of them is worth $10,000, we are talking about $40,000,000 in equipment owned by customers of a US company, that will now fall into the hands of Russians. And that is just one small mining company. There is many more of them.
Now how much do these miners make? According to my favorite BTC mining calculator, 4000 of these miners will mine around 24 Bitcoins in 2 weeks time. So let’s say 48 BTC a month before any difficulty changes. At the current price of BTC of around $40,000, this means almost $2,000,000 a month of extra income into Russian hands. Thanks to this unnecessary new US sanctions on Russian mining company Bitriver.
I don’t think there is anything else needed to be added. The last round of sanctions are not punishing Russians, but Americans and middle class citizens of other countries.