Ethiopia has emerged as a burgeoning hub for Bitcoin mining, particularly after China’s expulsion of the industry in 2021.
In the wake of the ban, major players from China began seeking new havens for their energy-intensive operations worldwide.
This quest brought them to Africa, with many arriving in Ethiopia last spring. Cargo containers housing potent mining rigs began cropping up near electricity substations linked to the Grand Ethiopian Renaissance Dam.
Ethiopia Embraces Bitcoin Mining
Although Ethiopia has prohibited the trading of cryptocurrencies, it began allowing Bitcoin mining operations as of 2022.
In the realm of cryptocurrency, “mining” refers to the process by which new units of Bitcoin are introduced into circulation and the underlying blockchain is secured.
Given that miners require substantial amounts of electricity to compete for new BTC, electricity constitutes a fundamental cost of their operations. Ethiopia stands out for its remarkably low electricity expenses globally.
Furthermore, it’s a particularly enticing destination for Chinese enterprises. Over the past decade, Ethiopia has strengthened its ties with China, with numerous Chinese companies contributing to the construction of the $4.8 billion dam that will provide power to the miners.
When compared to other energy-intensive industries, mining stands out for its indifference to demand and location. This unique characteristic allows miners to prioritize inexpensive power sources above all, regardless of geographical constraints or supply reliability.
In 2021, Norway exemplified this trend by powering nearly 1% of the world’s Bitcoin miners, predominantly utilizing hydropower.
Nuo Xu, the founder of the China Digital Mining Association, remarked to Bloomberg, “Ethiopia will become one of the most sought-after destinations for Chinese miners.”
Following a similar trajectory, Russia has also embraced Bitcoin mining while concurrently prohibiting the use of cryptocurrency for transactions, such as payments.
Risks Of Bitcoin Mining
The calculus for regulators in weighing the pros and cons of hosting miners within their jurisdiction is complex. While mining can offer significant economic benefits, it also poses challenges such as straining electricity grids during periods of high demand.
Kazakhstan and Iran serve as prime examples; both were once prominent players in Bitcoin mining but eventually shifted their stance due to concerns over energy consumption.
Jaran Mellerud, CEO of Hashlabs Mining, highlighted two key risks: “Firstly, countries may exhaust their available electricity capacity, limiting the potential for miners to expand. Secondly, miners could face sudden government crackdowns and be compelled to cease operations and relocate.”