Why Siberia is a great place to mine bitcoins

RUSSIA’S recession had taken its toll on Yuri Dromashko, an entrepreneur from the Siberian city of Irkutsk. His property investments had floundered. A karaoke bar was flailing. A venture to make machines that print magnets from Instagram photos failed miserably. “We were all crying,” he recalls. Then in 2016 his brother proposed bitcoin mining. Mr Dromashko acquired servers from China and watched the cash roll in. “It’s almost like you print money out of nowhere,” he says. “It’s the childhood dream.”

Irkutsk has embraced the digital gold rush. Awash in electricity from hydroelectric plants, the region charges 2.1 roubles ($0.04) per kilowatt-hour, compared with 5.3 roubles in Moscow. That makes “mining”, in which computers solve cryptographic challenges to generate currency, especially profitable. Seminars have proliferated. “Cybercurrency fever has swept Irkutsk,” declared a local television station this month.

This week the price of one bitcoin hit $12,000, up 1,485% on the year. Mr Dromashko says he spends about 4m roubles per month on electricity, but easily recoups that. “Selling drugs and guns wouldn’t generate such profits,” he says. (“Though I haven’t tried,” he clarifies.)

Some see cybercurrency as a path to self-sufficiency. Dmitry Tolmachev, an Irkutsk furniture magnate, developed a prototype modular home warmed by the servers’ excess heat. The homes cost $8,500 and up, and generate about $850 per month in mining profit. Mr Tolmachev sports a black beret, goes by “Che”, and recently did jail time for hosting a rally by the opposition leader Alexei Navalny. “The Russian man doesn’t love to work, he needs free money,” he says, invoking “Wish Upon a Pike”, a classic Russian fairy tale about a lazy villager who catches a magic fish that grants his wishes. “This is a kind of pike that does everything for you: it produces money, and heats your home too.”

At present the miners exist in a legal vacuum. In October, President Vladimir Putin ordered his officials to draw up a regulatory framework. Some in the Russian government see cryptocurrencies as a way around Western sanctions; the president’s internet ombudsman has his own mining farm, and one Duma deputy even proposed building a mining city in Siberia. But the central bank is sceptical, with one senior official calling cryptocurrency “a sort of financial pyramid that may collapse at any moment”. Siberia’s digital pioneers are undaunted. “Sure it’s a bubble,” Mr Dromashko acknowledges. “But all money is a bubble.”