Georgia's Crypto Problem

[Sheilbh]

Just an amazing story - so much happening:

Georgia's mountainous cryptocurrency problem
The legendary mountain region of Svaneti has turned into a cryptocurrency mint, resulting in chronic electricity shortages.
Giorgi Lomsadze Jan 18, 2022

Lenjeri Medieval towers in Svaneti. (photo: Giorgi Lomsadze.)

Just ahead of the new year, residents of Georgia's remote mountain region of Svaneti gathered in a church to make a solemn oath upon an icon of St. George: that they would not mine cryptocurrency.

"It is unfortunate that we had to resort to this extreme measure, but we have been left with no other option," one local told RFE/RL following the ceremony. It was a desperate attempt to deal with what has become an intractable problem: chronic energy shortages in Svaneti due to unscrupulous use of power-hungry computers mining cryptocurrency.   

A few days earlier, the electricity utility company Energo Pro warned that the situation was "untenable." Overuse had led to a spate of accidents on transmission lines that feed power to Svaneti, forcing the companies to send crews via helicopter to the high-altitude region, in harsh winter conditions, to fix them.

"No infrastructure can handle the kind of stress that we are seeing there," the company's head Mikheil Botsvadze wrote in a Facebook post.

Svaneti is best known for its towering, snowy peaks, picturesque stone-hewn hamlets, and strict traditional code of honor. Increasingly, however, it is also known for cryptocurrency production.

Some residents have been taking advantage of a government program providing free electricity to mountain regions, with the aim of keeping the remote communities alive, and using the subsidized power to churn out virtual money in their medieval towers.

Georgia has emerged as an unlikely global cryptocurrency hotspot, with prospectors attracted to the country's laissez-faire business environment and cheap electricity needed for the power-hungry process of "mining" the virtual money. Svaneti – with its free electricity for households and discounts for businesses – is an especially appealing base for the industry.

While that has allowed some in Svaneti to make a mint in the virtual economy, it has meant that many others in the hardscrabble region suffer from the resulting power outages. The region has no natural gas supply, meaning that electricity (along with wood) is used for heating in winter. Svaneti's other new economic hope – tourism – suffers particularly from the frequent power outages, which affect hotels, restaurants, and ski lifts.

Svaneti's cryptocurrency frenzy peaked in 2019, when the power company and police were forced to go door to door to disconnect consumers who had gotten involved in cryptocurrency mining. Energo Pro said it then took offline about five million laris [$1.6 million] worth of mining hardware.

But miners were undeterred, and last year the region's electricity consumption returned to 2019 levels, the company said. The regional capital of Mestia and nearby towns consume almost four times more power than the seven megawatt hours they are expected to.

Mountain dwellers are not the only Georgians using electricity subsidies for cryptocurrency: monasteries, too, have become unlikely outposts of virtual mining. In a dump last year of security services' surveillance files, one revelation was the extent to which the clergy had gotten involved in the crypto business.

"Since 2017, Bishop of Vani-Baghdati Diocese Anton Gulukhia owns up to 50 units of cryptocurrency production hardware," read one leaked filed cited by Georgian media. "He has the so-called bitcoin mines stationed in his bishopric residence." The brief says that since 2017, the residence's electricity consumption has been nearly tripling every year because of the cryptomining.

The bishop was unrepentant. "If I have them [computers used to mine virtual currency], then God bless; if not, may God give them to me," he told the TV network Mtavari Arkhi. "Is it a crime to have them?"

While few in Georgia dare to take on the powerful Orthodox Church, Svaneti residents are an easier target. Energo Pro and the authorities have threatened to take action against miners in Svaneti, and also to eliminate the region's electricity subsidies. "It is absurd to believe that the population has to have free electricity," the company said in a statement posted on its Facebook page.

Energy regulators echoed the statement. "We have to understand that if we don't start paying for electricity we will keep having outages and accidents that take time to fix," David Narmania, the head of the Georgian National Regulatory Commission for Energy and Water supply, told reporters. "All of this is a problem for tourism and a discomfort for the population."

Some energy experts, however, criticized the authorities and the company for placing the blame on Svans and argued that they should continue to get free electricity for household use. Residents of Svaneti deserve compensation, among other things, for the many hydropower plants built in the region that produce electricity for the entire country, Davit Chipashvili, an expert with environmental think-tank Green Alternative, told the local news site Mtis Ambebi.

The authorities and Energo Pro are the ones with the responsibility to differentiate households from business users, which they could do by setting quotas, Chipashvili argued. "The government has done nothing to fix this," he said.

Svaneti is a very beautiful place but this story is amazing.

Also something of institutions, trust, currencies and whether a system's functioning that links to the conversation I was having with Berk though I can't work out what yet.

[DGuller]

Yet another reason why crypto crash can't happen soon enough.

[Legbiter]

Yeah already crypto mining here is on par with the total energy usage of every household in the country. The national energy company will not be renewing these contracts in the next couple of years and will instead focusing on homegrown industry that creates more local jobs.

Also the whole crypto business needs to have a massive meltdown to clear out at least some of the more egregious scammers, etc.

[Sheilbh]

I genuinely think the next bubble burst is going to be crypto - there's just so much around it that strikes as really unsustainable but that some people have (sadly) put a lot of their money into.

I don't think it's big enough to have an institutional impact but maybe not

[Legbiter]

I genuinely think the next bubble burst is going to be crypto - there's just so much around it that strikes as really unsustainable but that some people have (sadly) put a lot of their money into.

I don't think it's big enough to have an institutional impact but maybe not

It'll reach saturation at some point. When your cabbie/Uber driver starts talking about his crypto portfolio you'll know the end is nigh.

[Sheilbh]

It'll reach saturation at some point. When your cabbie/Uber driver starts talking about his crypto portfolio you'll know the end is nigh.

Worse - my mum asked what it was Thankfully I was able to say I had no idea, no intent to learn and she should stay away from it.

[DGuller]

I genuinely think the next bubble burst is going to be crypto - there's just so much around it that strikes as really unsustainable but that some people have (sadly) put a lot of their money into.

I don't think it's big enough to have an institutional impact but maybe not

I think that's very likely.  Either the next bubble is crypto, or all the assets taken together.  Hopefully there aren't many derivatives behind crypto, so only those in the market will take a hit.

[Josquius]

I'm not so sure on crypto as a bubble to burst. It helps that it's a constant churn of tiny little bubbles funneling cash from idiots to crooks rather than one big never ending growth.
Will bitcoin be enough of a bubble on its own?


A builder cousin asked me about bitcoin years ago. The way he'd heard it is you put your money in and it sends it around the world and you get more money.
In hindsight he probably could have made a fair bit had he gone in then.

[DGuller]

I wouldn't be surprised if crypto is a piggy bank for some of the more rogue governments.  If the governments of Russia, China, and North Korea have armies of hackers sitting around fucking around with power grids, it could be a nice change of pace to employ them to hack the crypto accounts or engage in various crypto scams to milk the western Randian naïfs.