Bitcoin and crypto mining has been one of this year’s most hotly contested topics amongst lawmakers. Their debates have centered around bitcoin mining’s energy consumption and potential economic value. While some countries have embraced crypto mining, others have limited or even outright banned it.

Bitcoin mining has one of the highest ROIs. There is a high chance that shunning this activity will go down as one of the biggest economic blunders that a country can make. This article examines the energy mix and power costs of countries turning away miners and whether or not mining bans and/or restrictions are poor economic decisions.

The geopolitical landscape of bitcoin mining

Bitcoin’s network hashrate is distributed across the world. This distribution contributes to the network’s strength and resistance to attacks. China’s mining ban during the summer of 2021 contributed to the network’s hashrate distribution. Prior to the ban, China controlled 44% of bitcoin’s hashrate. The chart below shows the network’s current hashrate distribution. Note, these are official figures, it is highly unlikely that the Chinese’s share of bitcoin’s  hashrate is actually 0%.

Most lawmakers see bitcoin mining as an economic opportunity or as a threat to their government’s ability to effectively control economic activity and collect tax revenue. While bitcoin’s hashrate and price continue to climb, lawmakers must decide which side they want to be on. Bitcoin mining is a perfect illustration of game theory, some countries will ban it while others will embrace it and extract its economic benefits.

Over the past couple years we’ve seen select U.S. states, Venezuela, Laos, Portugal and Estonia adopt policies in favor of crypto and bitcoin mining. Meanwhile, China, Norway, and Sweden have chosen the latter approach. Lawmakers in Kazakhstan and Iceland are taking a ‘middle of the row’ approach with proposals to restrict miner’s power consumption. These proposals may harm these countries because they currently benefit from bitcoin mining and have strong electric grids and/or low energy costs.

Energy grids

Before expanding on the implications of these mining bans and restrictions, let’s take a look at the energy grids of countries who have raised such proposals. All of the following countries have energy mixes that can support bitcoin and crypto mining.

Norway

In November 2021, Norway moved to back the European Union’s proposed ban on bitcoin and other proof of work networks mining. The average household electricity price in Norway is $0.06/kWh, making home and large scale mining operations highly profitable. Given Norway’s energy mix below, incorporating “green” mining operations into the country’s GDP makes sense.

Sweden

This year, Sweden also called on the EU to ban bitcoin and other proof of work networks mining. The average household electricity price in Sweden is $0.20/kWh, while industrial rates sit at $0.076/kWh. Sweden is energy rich, it’s strong nuclear infrastructure stands out.

Iceland

According to the Icelandic Blockchain Foundation, 8% of all Bitcoins have been mined there. Iceland is rife with renewable energy, only 0.01% of total energy generation in Iceland is attributed to fossil fuels. The average household electricity cost is $0.14/kWh, while the average cost to businesses sits at $0.05/kWh. Geothermal and Hydroelectric power dominate the Icelandic energy grid. Iceland may benefit from following El Salvador’s example by using geothermal energy to mine bitcoin.

Kazakhstan

Kazak lawmakers are discussing limiting electricity access to cryptocurrency miners. With 18.1% of bitcoin’s hashrate coming from the country, depending on the severity of these restrictions, the country’s miners may be forced to relocate. The average electricity rate available to all Kazak citizens is $0.04/kWh. Kazakhstan's energy grid is dominated by fossil fuels.

Despite energy shortages, Bitcoin and crypto mining restrictions are economically foolish.

Energy shortages are a threat to the sustainability and future growth of Kazakhstan’s and Iceland’s bitcoin and crypto mining economies. Capacity shortages in Iceland have forced the country's national power company, Landsvirkjun, to turn away new Bitcoin miners. The following companies have set up in Iceland and are taking advantage of the country’s abundance of geothermal energy: Hive Blockchain, Genesis Mining, and Bitfury Holdings. If energy restrictions are severe, these companies may be forced to downsize their operations and the Icelandic government will collect less tax revenue as a result.

Kazakh lawmakers have also moved to restrict bitcoin and crypto mining’s share of the country’s electrical grid. Crypto mining brings more than $230 million into the economy of Kazakhstan each year. The National Association of Blockchain and Data Center estimates that mining will add $1.5 billion to the Kazak economy in a five-year period, resulting in over $300 million in tax revenue. It would be a terrible decision for Kazak lawmakers to pursue these restrictions and surrender this economic power to another country with cheap electricity and favorable laws, like Venezuela.

The lack of guidance surrounding crypto mining shows that this market is still in its infancy. Ban proposals are common during bull markets and many turn out to be false alarms. But miners need to understand that from a legal standpoint, their status can change quickly. For example, in the course of one year, the Swedish government has flip-flopped in support of a mining ban. China is another case of total regulatory change. Prior to summer 2021, bitcoin mining was completely legal.

Final thoughts

The politics surrounding bitcoin mining are complex and extremely nuanced. We’ve already seen what happens when a country bans bitcoin mining, the hashrate migrates to a friendlier region. As bitcoin’s price and use climbs, hashrate will become synonymous with economic power. Countries banning mining give up a chance to enrich themselves and their citizens. In the case of Norway, Sweden, Iceland, and Kazakhstan who have the energy capacity and infrastructure to support and build out their mining economies, pursuing unfavorable bitcoin and crypto mining laws will go down as one of the worst economic decisions in history.