Abkhazia's illegal bitcoin miners face new threat from thieves

by Umberto Bacchi | @UmbertoBacchi | Thomson Reuters Foundation
Thursday, 6 January 2022 02:00 GMT

Cryptocurrency mining facilities are seen in Pristina, Kosovo June 12, 2018. REUTERS/Hazir Reka/File Photo

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Abkhazia's ban on cryptocurrency mining to stem a power crisis has prompted a wave of thefts from gangs stealing precious mining equipment

* Abkhazia has banned bitcoin mining to stem an energy crisis

* Miners continue working underground, facing higher risks

* One man was killed during an attempted robbery in October

By Umberto Bacchi

TBILISI, Jan 6 (Thomson Reuters Foundation) - When Valeri checked the Abkhazia garage where he had set up a small and illegal bitcoin mining operation one autumn morning, he found the door bust open. Thieves had broken in overnight, taking with them 20 mining servers worth about $10,000.

"They cleaned up the place completely," said the 31-year-old from the Black Sea region, who preferred not to use his real name, adding the robbery left him feeling "angry and frustrated".

His was no isolated case. Cryptocurrency miners say Abkhazia has been hit by a wave of burglaries - some of them violent - since authorities banned the power-intensive activity to stem an energy crisis in 2020.

In October, five men armed with guns and Kalashnikov rifles accidentally killed one of their own after opening fire on thieves who had broken into a country house to steal mining servers, according to the local prosecutor's office.

And last month police said they made one arrest after two masked men broke into a home in Sukhumi, the capital, and held a family at gunpoint before escaping with three servers and 150,000 roubles ($2,040) in cash.

The wave of thefts is the latest twist in the region's crypto world, which many locals see as one of few ways to make ends meet.

Abkhazia broke away from Georgia in the early 1990s after the collapse of the Soviet Union.

It is recognised as an independent state only by Russia, which has a military presence there, and a handful of other nations, leaving it largely isolated and underdeveloped.

Opposition protesters gather outside the presidential headquarters in Sukhumi, the capital of Georgia's breakaway region of Abkhazia May 28, 2014. REUTERS/Nina Zotina.

"If conditions in our small republic were better than they are now, then I would do something else," said Victor, a 34-year-old bitcoin miner who asked to protect his identity.

POWER TROUBLES

A lush strip of land once the playground of the Soviet elite, Abkhazia experienced a mining boom last year as bitcoin prices soared.

Bitcoins are generated in a process called "mining", in which a global network of computers competes to solve complex algorithms.

These computers require a vast amount of energy to run, with climate experts voicing concerns about cryptocurrencies' potential to derail efforts to tackle global warming.

The crypto craze put Abkhazia's outdated energy system on the ropes, triggering outages and causing overloaded power stations to catch fire - which led to the government's latest mining ban in December 2020.

Police went on the hunt for crypto farms, raiding homes, attics, and even restaurants - cutting the power cables to mining processors they found. In March the government imposed new hefty fines on offenders.

Abkhazia's interior ministry told the Thomson Reuters Foundation it has opened "specialised" and "secured" warehouses to hold mining devices seized by authorities, as well as a hotline to report suspicious activity.

The government credited the crackdown with easing pressure on the energy grid through the summer - but the crisis did not abate, with energy consumption rising again in the autumn.

In October, Abkhazia's energy company Chernomorenergo pleaded with all residents to "reduce consumption as much as possible", as it announced new rolling blackouts.

"The ban has not worked at all. It's as simple as that," said Michael Lambert, a political psychologist and non-resident associate at the OSCE Academy in Bishkek, Kyrgyzstan, who has written about the issue.

Neither Abkhazia's economy ministry nor the prosecutor's office replied to requests for comment.

Energy in Abkhazia is so cheap that despite the government crackdown mining has proven too tempting for many locals, said Lambert.

Suspicion that government officials are in on the business has done little to persuade miners to pull the plug, added Maximilian Hess, a research fellow at the Foreign Policy Research Institute, a U.S. think tank.

"The region has long been attractive to organised crime and for corruption," he said. "Any crackdown locally will not necessarily be perceived as an act of law, but as various factions ... playing against one another."

In February the aide to a lawmaker was fired after being caught smuggling mining equipment from Russia aboard a government-owned car, in a case that sparked local outrage.

"I will stop doing this only when representatives of our government liquidate their own crypto farms," said Victor.

DIY SECURITY

Unable to turn to the police for help due to the illegal nature of their business, crypto miners have resorted to their own means of protection.

After a botched burglary, Victor said he fitted the disbanded factory warehouse where he holds some 140 servers worth about $72,000 with indoor and outdoor cameras, motion sensors and a remote notification system.

"It cost me about $2,000," he said, adding violent incidents like the shooting in October were an "exception".

"Server thefts are widespread ... but mostly carried out by young people because of low living standards and lack of employment".

The robbers who tried to break into his warehouse earlier this year fled as soon as the alarm went off, he said.

Valeri, who had no such security measures in place, said he has tried to track down the thieves himself but to no avail.

"I have another job but mining was my main income," he said. "This is a very good business that I really want to do again. Unfortunately now I have no money to buy the equipment."

LOOKING FOR SOLUTIONS

The crypto mining crisis has become increasingly difficult for authorities to handle, with continuing power cuts causing widespread anger.

"The population is rightly indignant, and their indignation is quite understandable," Abkhazia President Aslan Bzhania told a government meeting in November.

Days later, a gunman fired several shots at the headquarters of energy company Chernomorenergo, before being arrested, the interior ministry said on its website.

While police did not disclose a motive, the shooter was hailed a hero by disgruntled locals on social media, according to local news.

Abkhazia gets most of its power from a massive Soviet-era dam it shares with Georgia which underwent repairs earlier this year and, like most hydroelectric plants, sees low water levels in winter when demand for energy is higher.

To make up for the shortfall, the government has been importing energy from Russia, increasing its dependence on the Kremlin - causing concern among the more independent-minded Abkhaz, said Lambert.

Last month, opposition parties organised a large protest in Sukhumi against the government's handling of the energy crisis, among other issues.

The government has laid out plans to renovate the energy grid, set up a new system to calculate and levy electricity tariffs and create a "technopark" where miners could operate legally.

But Victor is sceptical.

"For almost 30 years after the war, our government could not or did not want to restore water supply and energy infrastructure. So I do not really understand what technopark we are talking about."

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($1 = 73.5425 roubles)

(Reporting by Umberto Bacchi @UmbertoBacchi, Editing by Zoe Tabary. Please credit the Thomson Reuters Foundation, the charitable arm of Thomson Reuters, that covers the lives of people around the world who struggle to live freely or fairly. Visit http://news.trust.org)

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