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Cryptomining, Post-Soviet Nationalism, and Monetary Sovereignty in Abkhazi and Transnistria

Along the continental rift between Europe and Asia exists another border: that between three globally recognized countries and their four rebellious, Russian-backed breakaway-states of South Ossetia (Georgia), Abkhazia (Georgia), Transnistria (Moldova), and Artsakh (Azerbaijan).  It is a border that the recognized states would hate to acknowledge at all, but that very much exists, for these are de-facto states that operate modern militaries and economies. These four proto-states, embodiments of post-Soviet frozen conflicts, emerged in the 1990s as the Soviet Union fell. While the specific circumstances surrounding their founding are complex and beyond the scope of this article, they came from ethnic differences within the greater post-Soviet states and allegiances to the now-defunct Soviet Union. And while they have the basic structures of traditional states, they have far less regulation and oversight. Their porous borders give rise to unique geopolitical and economic situations. The secessionist territories receive electricity from Russia and, at times, the country that claims them, giving them oft-abundant supplies of cheap power. And for entrepreneurs in two of these states in particular, these bounds of contested sovereignty, absent oversight, and access to resources have created the perfect opportunities to engage in a burgeoning, energy-intensive industry: cryptomining.

Abkhazia and Transnistria –– two de-facto states claimed by Georgia and Moldova, respectively –– are in the midst of a lesser-known tech boom across the greater Black Sea region. With cheap, fast electricity and, until now, little regulation, this region –– especially its secessionist states –– has been somewhat of a Wild West for cryptocurrency mining. Mining has sprung up everywhere from informal networks of apartment living rooms with a few computers to massive, abandoned Soviet factories financed by a stream of foreign money from Russia, China, and others. It is a lifeline for both scrappy, entrepreneurial citizens and their greater economies, especially as they struggle for full independence. This raises questions about not only cryptocurrency, but also territorial and monetary sovereignty, statehood, privacy, and the meaning of a new currency. In a world that considers currencies and economies to be the products of nations, how do we categorize decentralized cryptocurrencies mined out of secessionist states? While these de-facto nation-states are based on strong senses of political and ethnic nationalism, the cryptocurrencies they mine belong to no one and everyone, defying the usual national (or regional) status of currencies. They are used around the globe and controlled by no monetary policy or central bank. In a strange paradox, cryptomining in Abkhazia and Transnistria is thus simultaneously shaped by competing nationalisms while representing a supranational economic movement. It thereby bypasses the normative politics of national recognition by generating cash and relying on international (especially Russian) ties through a legally dubious market operating outside of the globally recognized system of national currencies and foreign exchange.

As mentioned previously, Transnistrian and Abkhazian cryptomining is made possible by the abundance of cheap electricity supplied by outside powers in support (Transnistria) or repression (Abkhazia) of their nationalism. While both countries are close to Russia, Transnistria alone receives significant amounts of Russian energy. The majority of its electricity comes from a Russian-owned thermal-power plant which provides the territory with cheap electricity. Similarly, Abkhazia’s power comes from a Georgian hydroelectric plant, the Enguri Dam, straddling the Abkhazia-Georgia border. In an unusual arrangement, Abkhazia recognizes Georgian ownership (and, thus, responsibility to pay for) the plant in exchange for a free (to the Abkhazian government, not residents) and guaranteed 40% supply of all electricity generated. Moreover, this energy supply can be seen as an extension of the Georgian view of Abkhazia as part of their sovereign territory.

Thus, Abkhazia is able to simultaneously use its threat of further nationalist rebellion and its widely-recognized inclusion in the Georgian state to demand a right to a quota of electricity. However, this makes it dependent on another state for the resources fueling its cryptomining –– and a much smaller and more antagonistic one than Russia is to Transnistria. Crucially, the plant cannot fuel year-round crypto demand for either side. While it feeds the industry with summer surpluses, it cannot cope with higher electricity demands in the winter. Though it is even cheaper in Abkhazia, electricity is also cheap for Georgia, which is also a cryptomining hotspot –– globally, the tiny Georgia trails only China in cryptomining output, though it is unclear if this includes Abkhazia.

Perhaps owing to their differences in electricity supply, the governments of the two territories, in the past few years, have adopted two different attitudes towards cryptomining. While Transnistria has encouraged its crypto sector by exempting mining revenue and equipment from taxation, Abkhazia has taken a mixed strategy. Multiple times Abkhazia has temporarily shut down mining altogether in order to cope with winter electricity shortages, while on the flipside it began efforts to identify mines and planned large investments in cryptomining starting from December 2018.

" Abkhazia and Transnistria –– two de-facto states claimed by Georgia and Moldova, respectively –– are in the midst of a lesser-known tech boom across the greater Black Sea region. With cheap, fast electricity and until now, little regulation, this region –– especially its secessionist states –– has been somewhat of a Wild West for cryptocurrency mining. "

Cryptomining has sustained an emerging digital-regional economy running parallel to the Western world. Cryptocurrency is well known as the agent of shadow markets. According to Australian researchers, Bitcoin alone is used fr an estimated $76 billion of illegal exchanges annually, accounting for 46% of its global transactions. But it also serves to fuel shadow states and their operations. With Russia and its allies increasingly cut off from the West (especially Europe) due to sanctions and tense relations, they have increasingly turned to each other. While the evidence is convoluted, this is epitomized by several possible links between Russian cryptomining investors in Transnistria and the 2016 hacking of Hillary Clinton’s emails as detailed in a 2019 Wired article. Russian agents paid hackers in cryptocurrency mined in Romania, where the Russian-owned GoWeb started mining at a suspicious time. In 2018, GoWeb expanded to Transnistria, importing millions of dollars of equipment just a month before the Transnitrian government passed mining legislation. There are also possible connections based on the acquaintances of a key investor. If these links are true, they emphasize the importance of cryptomining in building solidarity with Russia, which in turn advances Transnistria’s Russian-supported secessionist nationalism. Cryptomining, especially when fueled by Russian support or electricity, can thus cement bonds with Russia while creating investment opportunities with the greater world. This is crucial given that Abkhazia and Transnistria lack sufficient access to the international banking system (barring Russian banks) due to their lack of recognition.

On top of their distance from global economies, both states face crippling poverty and economic struggles. Cryptocurrency mining, thus, has a dual purpose. It not only links them to the international economy, but also generates income when opportunities to do so are scarce given the geopolitical situation’s strain on the greater region’s struggling economies. And while cryptocurrency maintains a shadow status in much of the world, these intentions are clear in Abkhazia: Adgur Ardzinba, the Abkhazian Economic Minister, stated that “given the limitations associated with the status of the republic … we always seek nonconventional solutions to reach an acceptable level of [economic] development,” in reference to cryptocurrency. Economic development is thus limited by the competing nationalisms between Abkhazia and the more globally recognized and allied Georgia, but Mr. Ardzinba plans to fuel it with even more nationalism.

While cryptomining operations in Abkhazia are currently focused on supranational currencies like Bitcoin, Abkhazia has plans to nationalize the crypto movement with a proposed Abkhazian cryptocurrency. In December 2017, Ardzinba announced plans to mine a new, national cryptocurrency, the Abkhazia Republic Coin, open to global buyers regardless of any existing or potential sanctions. While no progress has been announced, at least in the Western press, questions abound, especially concerning Abkhazia’s move towards legal mining.  Moreover, since Abkhazia temporarily banned cryptomining in December 2018 to address winter energy shortages, it has pivoted towards legalization and regulation with a proposed bill in June 2019. As Abkhazia fights for international recognition, an important question is raised: What does it mean to have a country with a cryptocurrency before a paper one? Moreover, what does this imply about the greater state of cryptocurrency: Does a national cryptocurrency defeat the secretive, stateless purpose of cryptocurrency, or does it fit a state that in its very existence is rebellious? 

Regardless, the cryptocurrency situation in Abkhazia and Transnistria is still developing. Whether or not the Abkhazia Republic Coin comes to fruition, cryptocurrency plays an important role on multiple levels. On the most basic level, it fills the pockets of both individual citizens and large state-linked enterprises. It could thus be crucial in fueling national economic success, which could then, in-turn, further empower the secessionist states to cut economic ties with Georgia and Moldova and assert their independence. Moreover, the prospect of international investment may eventually pave the way for international recognition, or at the very least bring cash into these isolated economies. The Russian ties, in particular, can be put into context of the greater regional Russian soft power and support for nationalist movements, such as in Ukraine. However, only time will tell if cryptomining can catalyze significant change in these mostly stagnant national conflicts.

Image via Flickr (Quoteinspector.com)