The Kingdom of Bhutan Has Been Secretly Mining Bitcoin for Years

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Bhutan, one of Asia’s smallest countries, is among the biggest mining countries of Bitcoin. Although they have not officially accepted cryptocurrency as a means of payment, Bhutan has been “mining” Bitcoin for several years, without telling a single soul about it!

Cheap electricity has been Bhutan’s biggest export for years, and it accounts for 30% of the gross domestic product. However, for the last few years, state officials have been using part of the electricity for the purposes of mining cryptocurrencies, namely bitcoin, Forbes reported.

Eagle's Nest.
Photo by Darshan Chudasama on Unsplash

Energy generated by hydroelectricity is not only used to fuel the homes and factories, but it has also been used for complex mathematical calculations. Solving these challenging mathematical problems “produces” bitcoins. Bhutan along with El Salvador are the only two countries that have state-owned cryptocurrency mines.

Bhutan

Bhutan or officially the Kingdom of Bhutan is a country in South Asia. The state is located on the eastern part of the Himalayas. It borders China to the north, and India to the south. With an area of 38,394 km2 and 777,486 inhabitants, Bhutan is one of the smallest countries in Asia.

The official language spoken in Bhutan is Dzongkha.

The official currency is the Bhutanese Ngultrum (BTN) and the Indian Rupee (INR). The capital and largest city in Bhutan is Thimbu.

State Cryptocurrency Mining

Unlike the authorities in El Salvador who do not hide the investment in cryptocurrencies, Bhutan has been doing this stealthily, keeping the operation out of prying eyes. They have been using the low cost of electricity in Bhutan to mine Bitcoin for several years. The representative of Bhutan’s state holding company, Druk Holding and Investments (DHI), confirmed the news to the local newspaper The Bhutanese.

Druk Holding and Investments

Druk Holding and Investments is a state-owned holding company in Bhutan, established in 2007 by the Royal Government of Bhutan. The company was created to oversee and manage a range of strategic state-owned enterprises, with the aim of fostering sustainable economic development and improving the welfare of Bhutanese citizens.

Currently, DHI has a diversified portfolio of investments in sectors such as hydropower, mining, finance, healthcare, education and tourism. Some of its subsidiaries include hydropower company Druk Green Power Corporation (DGPC) which owns and operates several hydropower plants in Bhutan; and Drukair Corporation Limited, the National Airline of Bhutan.

In addition to Bitcoin being the main focus of Bhutan’s digital mines, Ethereum is also mined to a lesser extent. DHI started mining Bitcoin a few years ago, when the value of the cryptocurrency was 5000 USD. There is no confirmation on the exact date, although the first-time bitcoin reached $5000 was in 2017, and the last time the price of bitcoin was around $5000 was in 2019. For a very short period in 2020 the price of the cryptocurrency was around 5000 dollars. Bhutan probably started “mining” Bitcoin in 2019.

The entire project is financed by the sale of bitcoins. At the current price, that is more than enough to pay for the electricity and the necessary hardware, so the whole project pays for itself. Part of the bitcoins is kept and waits until the next estimate in the year 2024. The block earnings will decrease from 6.25 to 3.125 bitcoins per block. With this, a big jump in the price of the cryptocurrency is expected.

Unfortunately, the capacity of Bhutan’s state-owned bitcoin mines has not yet been officially disclosed.

Bhutan is a perfect location for cryptocurrency mining

Bhutan has several advantages when it comes to cryptocurrency mining. Electricity in Bhutan is largely produced in hydroelectric power plants. The installed capacity of the power plants is 2,326 MW, but the estimated hydro potential is 30,000 MW. 15 years ago, the authorities drew up a plan by which the capacity in 2020 was to be increased from 1 480 MW to 10 000 MW.

According to that plan, 4 hydroelectric plants were to be completed in 2020. Due to a combination of complex geological, administrative and financial problems, only one of the planned 4 power plants has been completed, and another is expected to start operating soon. It is unknown when the other two could become operational.

Image courtesy of Asian Development Bank / Flickr / CC BY-NC-ND 2.0

In addition to electricity produced in hydroelectric power stations, which is still the cheapest, Bhutan also has an advantage due to cooling. Having the “mines” on high mountain passes provides efficient conditions for cooling.

A challenge for crypto mines is the winter months, when electricity production is low. Bhutan’s priority is domestic consumption and industry, so in this case either the mines are shut down or electricity is imported.

What is the state cryptocurrency mining capacity in Bhutan

Unfortunately, there is no official data on the size of the state capacity. Unofficially, Bhutan was interested in a 100MW mine, which would be connected to a hydroelectric plant.

The mine is far from the world’s largest venture, at least as far as crypto-mining is concerned, but it is enough to completely change Bhutan’s imports. On average, the largest part of imports in the Asian country are steel, rice and oil. Last year, 10% of Bhutan’s imports – $142 million – were computer chips. In 2021, chip imports were $51 million. In 2020, only $1 million was spent on chip imports. According to Forbes’ estimate, even with a super high chip price in 2021, the number of imported chips would be enough for a capacity the size of several football fields.

Partnerships with private mines

State-owned bitcoin mines are not the only crypto business investment for Bhutan. The state is in negotiations with Bitdeer – a company founded by Chinese billionaire Wei Jihan. The partnership with Bhutan will increase Bitdeer’s capacity by 12%. The start of the construction of the crypto-mine in Bhutan is to come to fruition in the second half of 2023. Druk Holding and Investments and Bitdeer announced the creation of a joint fund of 500 million dollars, for which they are starting to collect investments this month. The fund will be used to finance the construction of data centers in Bhutan, Coindesk reported.

The ban on cryptocurrencies brought in by China, and the increased tax and restrictions introduced by destinations like Sweden and Kazakhstan, have caused mines to look for new locations. Cheap electricity remains key to the profitability of cryptocurrency mining.

The pandemic, which in 2020 and 2021 completely destroyed the income from tourism, has also contributed to the interest in Bitcoin by the Bhutan government. Tourists who want to visit Buddhist monasteries were a significant source of income for Bhutan, so a new source of finance was necessary.

The idea for shipping containers that, instead of goods, will have mining modules that need to be connected to an electrical grid came from a group of Chinese and Singaporean businessmen. The cost of a container with a 700KW rig would be $800,000. The project has been put on hold for the time being.

Insufficient transparency with state money

Bhutan’s need for additional finance and the idea of using the country’s hydro potential are not problematic. The bigger problem lies in the lack of transparency among the authorities, who hid how the citizens’ money was spent.

For several years, Bhutan’s state-owned crypto mine has been an open secret, but the only “proof” of this has been LinkedIn posts about DHI employees in “crypto mining farmhouses” or “Bitmain-made mining rigs.” Citizens were not informed about the capacities, so even those who had heard something, believed that it was only about experimental projects.

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