The ambition of Russia to position itself as a global hub for cryptocurrency mining is threatened by a vast and opaque shadow economy that robs the national government of an estimated 10 billion rubles (more than $122 million) per year in unpaid taxes.
The shocking number provided by industry observers highlights a fundamental problem for Moscow. Even though the government has formally entered the cryptocurrency mining business by legalizing it last year in order to seek its economic promise, almost all miners operate outside the law. Now, the government is preparing a new two-pronged strategy of incentives and penalties to bring this booming but unruly industry under state control.
A Thriving Underground in Siberia and the Caucasus
The heart of Russia’s illegal mining problem lies in regions with abundant and cheap electricity. According to Pyotr Fyodorov, an associate professor at the National Research University of Electronic Technology (MIET), the hotspots for these “grey” operations are the Siberian Irkutsk Oblast and the Republic of Dagestan in the North Caucasus.
These underground crypto farms are often smartly concealed within the walls of derelict manufacturing plants or old farms. The farms draw the power directly from the grid, and their presence often is only detected after large electricity spikes or if they cause periodic disruptions to the local distribution network.
The 70% Problem: Widespread Tax Evasion
The scale of the noncompliance is remarkable. At a recent digital finance forum, Deputy Minister of Finance of Russia Ivan Chebeskov indicated that only about 30% of all crypto miners in Russia are registered with the Federal Tax Service (FNS).
This means that more than two-thirds of the industry is operating off the books, completely evading the tax obligations that come with their newly legitimized business status. The government legalized mining to leverage Russia’s competitive advantages—cheap energy and a cool climate—but it has so far failed to convert this vast activity into a reliable source of state revenue.
Moscow’s Two-Pronged Strategy: Amnesty and Penalties
In response, the Kremlin is now preparing a “carrot and stick” approach to tackle the problem. The “carrot” is a suggested amnesty for miners that imported special hardware without going through customs. This measure is designed to encourage existing underground operators to come forward and legitimize their businesses without fear of initial penalties.
The “stick” is a new draft law that will introduce harsher penalties for illegal crypto mining. Rosseti, the nation’s power grid operator in Russia, continues to strongly advocate this movement, as it has been subjected to the most impact from unreported mining farms.
Beyond Mining: The Push for a “Full-Fledged” Crypto Infrastructure
For officials such as Deputy Minister Chebeskov, collecting taxes from miners is just the initial stage. The ultimate purpose, he explained, is for Russia to produce its own “full-fledged” domestic crypto infrastructure.This long-term vision includes establishing “clear rules of the game” for the entire digital asset industry.
This infrastructure would enable the easy conversion of cryptocurrency into fiat rubles and promote the more active use of crypto for both investments and international settlements—a particularly attractive prospect for Russia as it seeks to bypass Western financial sanctions. The Treasury and the Central Bank are already working on this matter within a new “experimental legal regime.”
A Calibrating Act with High Stakes
The Russian government is engaged in a calibrating act with high stakes. It wants to exploit its natural advantages to make it a global leader in the profitable crypto mining industry but must come to have hold of a decentralized, mobile shadow economy and first. The success of its new strategy will determine whether Russia can transform this booming sector into a taxable national asset or if it will remain a multi-million-dollar drain on the state’s resources.
