Tech
Chinese bitcoin miners are flocking to Ethiopia, attracted by its cheap energy and ideal climate
Ethiopia, which has allowed bitcoin mining starting in 2022 although it still bans cryptocurrency trading, has strengthened ties with China over the past decade, and several Chinese companies helped build the 4.8-meter dam. billions of dollars from which the miners intend to extract energy.
The Great Ethiopian Renaissance Dam is the largest hydroelectric power plant in Africa. Photo: AFP
Ethiopia has emerged as a rare opportunity for all companies mining the original cryptocurrency, as climate change and energy shortages fuel a backlash against the $16 billion-a-year industry (at bitcoin’s current price) somewhere else.
But it has a special appeal for Chinese companies, which it once dominated bitcoin mining but they have struggled to compete with local rivals in Texas, the current hub.
It’s also a risky bet, both for companies and for Ethiopia.
A number of developing countries such as Kazakhstan and Iran initially embraced bitcoin mining, only to ignite the sector when its energy use threatened to fuel domestic discontent.
China’s reign as the epicenter of bitcoin mining came to an end an abrupt end in 2021, when the government banned it. Dozens of companies were forced to leave.
“First, countries can run out of available electricity, leaving no room for miners to expand,” said Jaran Mellerud, CEO of Hashlabs Mining. “Second, miners may suddenly be deemed unwelcome by the government and be forced to pack their bags and leave.”
Ethiopian officials are wary of the controversy surrounding bitcoin mining, according to industry executives who spoke on condition of anonymity to avoid jeopardizing government relations.
Even after new generating capacity comes online, nearly half the population lives without access to electricity, making mining a sensitive issue. At the same time, it represents a potentially profitable source of foreign exchange earnings.
According to an estimate by mining services provider Luxor Technology, Ethiopia has already become one of the world’s largest recipients of bitcoin mining machines. That’s just as Luxor’s first major deals to ship equipment arrived in September, Chief Operating Officer Ethan Vera said.
The state power monopoly says it has struck electricity supply deals with 21 bitcoin miners. All but two are Chinese.
“Ethiopia will become one of the most popular destinations for Chinese miners,” said Nuo Xu, founder of the China Digital Mining Association, which organizes exhibitions and facilitates trading in mining machines. He is organizing a trip to Ethiopia for a group of Chinese mining executives to visit potential sites.
The fact that bitcoin miners are willing to ship tens of millions of dollars worth of equipment to a country that only two years ago emerged from a civil war in its north is a testament to the difficult political and economic context in which they exist .
Companies play a crucial role in maintaining the bitcoin network by using powerful computers, or “rigs” in industry parlance, to solve mathematical puzzles and validate encrypted transactions on the blockchain. In exchange, they receive rewards in bitcoins released by the network.
It’s a volatile business, with revenues following the rise and fall of the token. Miner Core Scientific plunged into bankruptcy in December 2022 as cryptocurrency markets collapsed; 13 months later he won court approval to emerge from Chapter 11 after the price of bitcoin increased nearly 150%.
Plants use large amounts of energy, so access to low-cost electricity is a key competitive advantage. According to estimates from the Cambridge Center for Alternative Finance, Bitcoin mining consumed 121 terawatt hours of energy in 2023, a similar consumption to that of Argentina. According to Mellerud, electricity can account for up to 80% of miners’ operating costs.
That explains why cheap energy has largely determined where miners have placed much of their equipment in recent years: first in China, then in places like Iran, Kazakhstan, Russia and northern Sweden, and most recently in Texas . What these places have in common is relatively cheap energy.
Dependence on abundant energy also represents a serious vulnerability because it can put miners in competition for electricity with factories and households, exposing them to political backlash.
When Kazakhstan imposed new restrictions and taxes on miners, “it basically killed the industry,” said Hashlabs co-founder Alen Makhmetov. Two years after the crackdown, its 10-megawatt plant is still idle.
And in an age where rising temperatures wreak havoc around the world, bitcoin mining is increasingly seen as a contributor to global warming that serves no productive purpose, even as miners have said they are exploiting more and more clean energy.
A United Nations University study published in October estimated that two-thirds of the electricity used to mine bitcoin in 2020 and 2021 was generated using fossil fuels.
The Ethiopian government has allowed bitcoin mining mainly because companies pay in foreign currency for the electricity they consume, Yodahe A. Zemichael, deputy director of the Information Network Security Administration, said in response to questions from Bloomberg News.
In his written response he used terms like “high-performance computing” and “data mining” rather than bitcoin mining.
“Ethiopia is heavily regulated,” said Nemo Semret, CEO of local miner QRB Labs, which has helped officials lobby to allow bitcoin mining. “Introducing a new sector like this has been a great challenge and over the last two years we have worked to obtain all the necessary authorizations from the government.”
According to Yodahe, the government has adopted a directive to regulate “cryptographic products,” including mining. He added that licensing “is being carried out in a sandbox and is at an early stage”, declining to say how many permits have been granted so far.
Semret said uncertainty persists among miners about how authorities will supervise them in the long term, and Yodahe declined to say whether the directive has been shared with industry participants.
Yet for bitcoin miners – especially Chinese ones – Ethiopia represents a unique blend of economic and political advantages. Some executives even talk about it as a possible rival to Texas, which accounts for as much as a quarter of the global capacity to create bitcoin.
Ideal climatic conditions
The African country’s ability to supply electricity for bitcoin creation could rival that of Texas in a few years, according to an executive at Bitmain, the Beijing-based company that is the main equipment supplier. The launch of the GERD project increased Ethiopia’s installed generating capacity to 5.3 gigawatts, 92% of which comes from hydropower, a renewable energy source.
Once the GERD is fully completed, Ethiopia’s generating capacity will double, according to Ethiopian Electric Power (EEP). It charges bitcoin miners a flat rate of 3.14 US cents per kilowatt-hour for electricity drawn from substations, marketing and business development director Hiwot Eshetu said in an interview.
While this is similar to the Texas average, rates in the Lone Star State can fluctuate wildly, Luxor’s Vera said, making profits less predictable. In Ethiopia, according to Hiwot, the price will drop once miners connect directly to power plants. She added that the EEP has suspended the signing of new contracts “to ensure a well-controlled and managed process”.
BWP, which hosts machines used by miners from China and other countries, began shipping equipment to Ethiopia early last year. In December, the company announced on X that it would open a 120-megawatt data center for mining equipment – sizable even by Texas standards – in Addis Ababa, the capital.
CEO Vitaliy Borshenko said Ethiopia’s advantages go beyond cheap renewable energy.
“The ideal temperature for miners is between 5 and 25 degrees” Celsius (41 and 77 Fahrenheit), he said, citing recommendations from rig manufacturer Bitmain. “This is right in the average temperature range in Ethiopia.” Addis Ababa sits at nearly 2,400 meters above sea level, much higher than most Alpine ski resorts.
The attractiveness is such that some Chinese companies do not wait for the official green light before starting operations, said Xu of the China Digital Mining Association.
“Miners pose as factories or farms” to obtain electricity rather than seeking government approval to create bitcoin, he said without naming them. Yodahe did not respond to a request for comment on those practices.
Their confidence is supported by geopolitics. China is Ethiopia’s largest source of foreign direct investment as well as its largest bilateral creditor. The Chinese government and financial institutions lent nearly $15 billion for 70 “mega projects” in the African nation from 2006 to 2018, Ethiopia’s finance ministry said in December.
Ethiopia was one of 17 nations with which China strengthened ties last year President Xi Jinping has courted partners from the Global South. In October, Xi hosted Ethiopian Prime Minister Abiy Ahmed in Beijing as the two countries elevated their relations to an “all-weather strategic partnership,” according to the official Xinhua news agency.
The Horn of Africa country is in desperate need of foreign exchange inflows. It is in talks for a bailout from the International Monetary Fund after defaulting on interest payments to private creditors in December. The month before, it had reached an agreement with bilateral creditors to suspend payments.
Encouraged by China’s growing stature in Africa, Chinese bitcoin miners are also starting to look at countries like Angola and Nigeria, Xu said.
“Chinese miners have no problem building sites in Africa,” he said. “It’s like another Chinese province.”