The Chinese government’s decision to drastically restrict mining operations in June 2021 has pushed many industry professionals to relocate abroad. The prerequisite for relocation is a reliable source of energy, capable of powering farms at low cost, and approval from the government authorities, or at least informal tolerance, will do.
On a misunderstanding, an ambiguity, and in good faith, it passes. This is the policy adopted by many Chinese miners, installed on the sides of hydroelectric power stations in Laos, their regions of origin, having been forced to cut off their electricity in the application of Beijing’s directives. One of the reasons given was that the power supply via coal-fired is a disaster for China’s ecological ambitions.
While there is no doubt about the hydroelectric potential in the land of the million elephants, the legal ambivalence is about to be clarified. In September 2021, six companies were officially authorized to mine Bitcoin in the country, as part of a pilot program. At the same time, the government is working on a law to regulate these activities.
The draft of a regulation, a crazy or fuzzy text
At 6.95 US cents per kilowatt-hour (5.5 cents in the rainy season), the announced rate is likely to attract future investors, especially since the fall of the Lao KIP has led the average consumer to pay less than six cents per kilowatt-hour to date. However, off the record, the idea is spreading that it would be possible to negotiate a preferential rate in exchange for an advance payment of several months or even several years.
An operating license is set at 500,000 US dollars, as well as a tax based on the size of the power supply. Crypto Exchange services, on the other hand, will be taxed at a rate of fifteen percent, a rate that is incomprehensible to the ordinary citizen.
Laos expects to generate close to $190 million by the end of 2022, according to the Ministry of Finance. This is a welcome cash inflow, which should make it possible to increase civil servants allowances and pay off Covid’s debt. Timider, the Bank of Laos (BOL) considered at first, that cryptocurrencies are not real, they could not be used by the State to pay the debt.
For the time being, this text with vague contours, lifesaving for some or full of aberrations for others, is only a draft law, whose principles are still to be negotiated. But many questions remain about the crypto-mining activity itself in Laos.
Legitimate ecological concerns
The official and unofficial Bitcoin farms, which consume a lot of electricity, are located near the many dams in the Mekong basin. This is a godsend, because Laos, with its 7 million inhabitants, has a large surplus of hydroelectric power. Neighboring China is involved in this venture, having financed and built itself many dams in exchange for 29 years of exploitation for its profit.
But these high-capacity reservoir dams, as opposed to run-of-river infrastructure, are not without their problems. Socio-environmental studies are suspected of being sloppy or non-existent. In 2018, the collapse of the Xepian Xe Nam Noy dam in the Attapeu region caused the death of several hundred people, not to mention the material damage, including in neighboring countries.
But the dams are there, and no matter if they are built by China, their production is used to supply the neighboring countries where the electricity needs are exploding. As for local distribution, it is progressing when/if required, but the electrification remains costly, as well as the maintenance of the infrastructure itself.
Under these conditions, mining seems to be a godsend, since the revenues generated would finance these expensive projects, without taking anything from the inhabitants, provided that the surplus electricity produced by the dam is used. It may be wise to add a clause of deletion, for the benefit of the population. Recently, the inhabitants of the Luang Prabang region found themselves in the dark for a lack of available electricity, entirely absorbed by Chinese mining farms.
Discreetly installed near a dam, the miners are no doubt hoping to slip under the radar of the legal regulator, who is still working on his bill.
Bitcoin between crime and socio-economic benefits
Once the BOL’s concern about Covid’s debt repayment from cryptocurrency revenues is over, the ongoing regulation should complete the clarification of the planned framework for the practice of the mining activity. Among other fears: a resurgence of crime, caused by a persistent bad reputation of Bitcoin as a money laundering currency, and the presence of casinos in the Golden Triangle area with more than suspicious ramifications. From this point of view, while the fifteen percent tax on cryptocurrency exchange may discourage the ordinary citizen, others are fine with it. Accustomed to nearly fifty percent fees for laundering dirty money, criminals may well seize on the boon of the country’s “flexibility” when it comes to converting bitcoin over the counter discreetly.
Access to cryptocurrencies may also help rural populations underserved by traditional banking services, as smartphones are widely available. On the menu: the ability to take out micro-loans, and to send or receive international transactions at a lower cost. This is a definite advantage for the many families who depend on a salary received abroad by one of their members, as well as for small traders who order their supplies in China.
One of the six companies in the pilot program, Bitqik has already developed an exchange platform that could be more successful than mobile banking, which does not support international remittance.
Mining Bitcoin in the bosom of the decarbonized water industry, in addition to being a potential development factor, remains a fairly ecological operation if it is well done. It remains to be seen whether the little country of the million elephants will be able to find the right framework to make its inhabitants benefit from it, and contribute with this new resource to achieve its Millennium Development Goals.
