According to reports, Bitcoin Mining companies from China have been migrating their base into Ethiopia, despite the country’s ban on crypto trading. Per a Bloomberg report, due to the country’s remarkably cheap electricity cost, the Ethiopian government is now strengthening ties with Chinese firms engaging in Bitcoin mining.
Bitcoin Mining, a process that validates Bitcoin transactions consists of mining systems competing with each other to solve a cryptographic problem and award bitcoin. Bitcoin mining confirms transactions on the cryptocurrency’s network and secures it. The three biggest costs for Bitcoin mining are electricity, network infrastructure, and mining infrastructure.
Now, Bitcoin mining is an energy-intensive process with customized mining systems that compete to solve a cryptographic problem. Although individual miners using desktop systems played a role during the cryptocurrency’s early days, the Bitcoin mining ecosystem is dominated by large mining companies that run mining pools spread across many geographies. It is also controversial because it uses astronomical amounts of energy.
Deservedly, Bitcoin mining energy usage has been criticized by climate activists as proof that the cryptocurrency is not environmentally friendly. The Bitcoin mining process is estimated to consume as much electricity as entire countries.
According to an estimate from the Cambridge Centre for Alternative Finance, Bitcoin mining consumed 121 terawatt-hours of power in 2023, similar to Argentina’s electricity usage. Developing countries like Kazakhstan and Iran initially embraced Bitcoin mining, only to turn on the sector when its energy use threatened to fuel domestic discontent.
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Also, China’s monopoly as the global headquarters of Bitcoin mining came to an end in 2021, when the government banned the activity, which forced many companies to leave.
But amidst that global pushback against the energy-intensive Bitcoin mining industry, Ethiopia has surfaced as an unexpected haven, offering opportunities for Chinese firms.
More details on the Ethiopia Bitcoin mining
Ethiopia allowed Bitcoin mining starting in 2022 although the East African country still bans cryptocurrency trading. The country has bolstered ties with China over the past decade, and several Chinese companies helped build the US$4.8 billion (S$6.5 billion) dam the Bitcoin miners plan to draw their power from.
Per the Bloomberg report, after facing issues globally, Chinese Bitcoin mining companies have now found a haven in Ethiopia, whose leaders now welcome bitcoin miners with the support of the country’s low electricity costs.
According to mining services provider Luxor Technology, Ethiopia has already risen to become one of the world’s top recipients of Bitcoin mining machines. Also, the state power monopoly says it has struck power supply deals with 21 Bitcoin miners, of which only two are not Chinese companies.
According to industry executives who spoke to Bloomberg anonymously, Ethiopian officials are wary of the controversy that accompanies Bitcoin mining.
Ethiopia is welcoming for economic purposes
Almost half of the Ethiopian population reportedly live without access to electricity even after new generation capacity came online, which makes Bitcoin mining in such a frail country a delicate business.
However, the activity represents a potentially lucrative source of foreign-exchange earnings. The Ethiopian government reportedly permitted Bitcoin mining mainly because the companies pay in foreign currency for the electricity they consume.
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According to the deputy director at the Ethiopian Information Network Security Administration, Mr Yodahe A. Zemichael, who used terms like “high-performance computing” and “data mining” instead of Bitcoin mining in his response to questions from Bloomberg, the Ethiopian government has adopted a directive to regulate “cryptographic products” including mining.
Adding that issuing licences “is being done in a sandbox and it’s in an early stage,” declining to say how many permits have been granted so far.
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