Every night when he comes home from work, Thomas sits down at his computer. He opens his online wallets, all filled with bitcoins, litecoins, BAT coins, or ether… all the virtual currencies in which he has invested. He checks out their values on the stock market; if one of them has suddenly gained value, he resells it. If not, he studies other possibilities, the currencies that have just been created, buys some or trades others. His goal is to make 1 million euros in the next few years to stop working, go traveling and volunteer full time by living off his savings.
A year ago, when he began trading, Thomas got into mining. “But the equipment was already too expensive, prices soared.” Plus, his monthly electricity bill would have also skyrocketed if he’d mined from home. Mining involves solving security problems to check the exchanges between two people. Miners compete with each other and the winner wins bitcoins. They thus secure the network and also allow the circulation of new bitcoins.
It’s a real business: “mining farms” have developed around the world. They’re rooms filled with computers continuously creating hundreds of thousands of cryptocurrency units. They are then sent to their respective blockchains; a technology that makes it possible to store and transmit information transparently, securely and without a central controlling body. Some places are well known for mining: Canada, Lapland, Iceland or China, to name a few. But one of these sites stands out: Siberia, which has become an unlikely El Dorado for cryptocurrency miners.
Connected to a public generators
François Souvignon manages seven mining farms in Barnaul, a town of 650,000 in Siberia. The 48 year old is the creator of the sites jeuxvideos.com and Clubic. Five years ago, he moved to Siberia to work for Enterra, a company that creates software interfaces for websites and applications. He’d always been passionate about computer science, but two years ago, he began looking into the world of cryptocurrencies. He invested in Monero – a currency launched in 2014 – valued at just under 3 euros back then. By August 2017, it was worth 111 euros and by December, it was up to 172 euros. He resold several thousand. He then bought 16 graphic cards – machines with an average value of 3,000 euros that can be used to mine cryptocurrencies. The project became self-sustaining. Today, 2,000 graphic cards and 250 Asics (other mining machines) work all day long in a 300 m² room producing thousands of cryptocurrencies each. François also runs six other farms for other people. The income he gets from that is subject to change. But to give you an idea, “my wife just got her license, and in a month, simply from my own farm’s net profits, not counting expenses, I was able to get her an Audi Q3.”
François sleeps three hours a night on average, and works days and nights. “But it’s always been like that, I’ve never slept more than 3:30 hours a night. For me, sleeping late on Sundays is almost a fantasy! I don’t know what it’s like to get up at 9 AM,” he jokes. In addition to the seven farms he manages and his job at Enterra, he also recently created the Siberian Mining Hostel, a company that offers mining services to international investors. The work is done from Barnaul. “They can invest 50 or 150,000 euros to buy the equipment, give me a strategy or let me decide on one for them, and let me manage their farm.” Right now he has two investors, a Frenchman and a Russian. There are many who want, at a distance, to take advantage of the ultra-reduced costs he enjoys.
And effectively, where he lives, the price of electricity is extremely low. François pays 2.8 rubles per kilowatt hour, or 0.04 euros. In France, he’d be paying 0.15 euros. The “Russian capital of mining” is Irkutsk, where electricity is the cheapest in Russia thanks to local subsidies. RT estimates that there are more than 1,000 mining farms in the city alone. And even if the rates are low, “there are those who have connected to public generators to pay nothing out of pocket” François says.
In addition to cheap electricity, the extremely low temperatures in the region are a significant advantage. Though they can rise to 30°C in the summer, they sometimes go as low to -60°C in the winter. The farms, which house thousands of machines that run 24 hours a day, heat up very easily and the temperature must be kept below 26°C. “I never use air conditioning, it saves me a lot of money. The air conditioner on a farm can represent up to 40% of the budget.” During the summer, François can rely on “free-cooling,” which takes air from outside, whose temperature is lower, and transforms it before bringing it inside. “And here, the cooling represents only 2% of my expenses.”
“Russia is supposed to come in second, after China, when it comes to mining, but in my opinion, it is first! In Barnaul alone, I know about 100 farms. I’m talking about medium or large ones, those that are more than 500 m².” But they are not all declared or visible to the naked eye. In the 20th century, Siberia – which represents 80% of Russia’s territory – was home to large industries. The region is still exploited for its natural resources, but since the fall of the USSR, activity has slowed, the premises have emptied, leaving huge buildings unused. “So we negotiate with the owners, we can rent 400 m² spaces to companies for the equivalent of 125 euros per month,” says François. And, in return, the heat produced by the computers are sent to the rooms used by the workers. “It’s a good exchange.”
The main criticism leveled at the crypto-economy is its ecological damage, especially because of the energy needed to create these currencies. According to the energy consumption index available on Digiconomist, miners’ annual electricity consumption has reached a peak of 25 terawatt hours (TWh). This corresponds to Nigeria’s annual electricity consumption – a country of 186 million inhabitants. So instead of letting the energy evaporate and pollute, farm managers are find solutions.
Irkutsk is one of the cities where electricity costs the least in Russia. Prices are about five times lower than in Moscow, which has brought BitBaza, the largest mining farm in the country. Its CEO, Danil Zakomolkin, has decided to redistribute the energy produced by his farm to heat surrounding homes. The project was repeated by two other Russian entrepreneurs, Ilya Frolov and Dmitry Tolmachyov, who plan to build 2000 “crypto-homes” by 2020 – each heated only through mining.
François plans to reduce his farms’ electricity bills. The area he lives in has many lakes and rivers, so he’s thinking of installing a system of underground water turbines which will produce enough energy to feed his mines. “Expenses will be high at first. But in 10 years, when I have repaid the investment, my electricity bills will be reduced to zero.” Many people have told him they think it’s crazy he’d spend so much on the project when electricity already costs next to nothing, but he is seduced by the project and its ecological aspect. “Right now it’s expensive because it’s new, but someone has to start, right?”
“Everyone mines here. The young, fathers – these aren’t investors who are waiting to sell to become millionaires, but people who are supplementing their salaries to earn 2000 rubles a month”, François says. When he attends French forums, he is surprised to see how few they are. He thinks France is very late to the crypto game. The blockchain is used by the elite and computer enthusiasts in France, but that’s not the case in Siberia. “There is no employment center in case you lose your job. So you’ve got to figure it out on your own.”
Today, there are between 1,000 and 2,000 different cryptocurrencies. Bitcoin may be the best known, but it only represents 3% of the currencies François creates. For him, it’s not profitable enough. “It’s a bit like Crypto 101. Its value is stable and if we only mine that, we can repay its investment in the space of eight months.” But he wants faster returns on investment, so he’s producing enough just to pay his expenses in cryptocurrencies. As for the remaining 97%, these are other currencies already widely used and quoted, but above all, “I bet on new currencies, I produce a lot and then I hope they will rise in value over time”. He studies the currency, and if he likes it, he mines it, hoping it will take off. Some, thanks to investors who believe in them, will increase, others will never break even.
Right now, this activity is neither legal nor illegal. That’s why last September, Vladimir Putin said he wanted to create a law to supervise it. It will be rolled out in July. François meets regularly with local ministers from the Altai region, where he lives. They cannot give him subsidies until the federal government has legalized his business, but they help him out by putting him in contact with investors. “When the law passes, local governments will be able to further subsidize and help cryptocurrencies grow.” He thinks subsidies to help acquire or rent land, or to help buy mining equipment in China, 300km away, will be especially useful. Meanwhile, it is more and more official on the Russian territory. Bitcoin ATMs already exist in Novosibirsk and in various parts of the world (in Seoul, as seen in the above image), and will arrive shortly in Irkutsk. A cafe that accepts bitcoin has also opened in the city. In 2019, to avoid international sanctions, Russia plans on giving birth to a new currency, the CryptoRuble. Even the Kremlin will have a farm in Siberia then.