Siberia’s DIY cryptocurrency miners | Financial Times

This is an audio transcript of the FT News Briefing podcast episode: Siberia’s DIY cryptocurrency miners

Marc Filippino
Good morning from the Financial Times. Today is Friday, February 18th, and this is your FT News Briefing.

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So when we were looking around for the best new stories to bring you today, crypto kept popping up. So we leaned into it. We’ve got an all crypto show for you today. We start in Silicon Valley, then we go to Switzerland and we end up in the far reaches of Siberia, where crypto mining is a cottage industry.

Polina Ivanova
Everybody knows about bitcoin mining. Grandmothers and galoshes who are, you know, talking about their chickens and talking about their raising the goats and also telling you about bitcoin mining.

Marc Filippino
I’m Marc Filippino and here’s the news you need to start your day.

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One of Silicon Valley’s most influential venture capital groups plans to move deeper into cryptocurrency markets. Sequoia Capital yesterday said it set aside between $500 and $600 million for a new fund. It would primarily invest in cryptocurrency tokens traded on third party exchanges. This is part of a broader restructuring at the firm, and the new fund would allow Sequoia to play a more active role in cryptocurrency networks. The move shows how bigger tech investors are plunging into cryptocurrency, where they’re seeing specialist funds enjoy explosive profits.

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This week, a leading global regulator came out with an urgent call for coordinated action on cryptocurrency. The Financial Stability Board, which is based in Switzerland, wants to ensure that a potential crisis in the cryptocurrency asset market doesn’t threaten broader financial markets. To talk more about this I’m joined by our markets editor, Katie Martin. Hi, Katie.

Katie Martin
Hey, how are you going?

Marc Filippino
Things are going well. So, Katie, it feels like we report on this a lot. That a regulator from individual countries issue warnings about cryptocurrency in the cryptocurrency market. How significant is this warning from the Financial Stability Board?

Katie Martin
The long and short of it is, yes, Financial Stability Board. These are kind of these are heavy hitters, right? They make recommendations to the G20 on financial rules. So it’s not just a talking shop. And effectively, what they’re saying is, look, up until quite recently, we’ve been able to kind of look at what’s going on in crypto, look at what’s going on in decentralised finance from a bit of a distance and say, isn’t this a fun little distraction? I wonder how this is all going to pan out. Now they’re saying suddenly it’s reached a certain size and it’s got enough tentacles into the mainstream financial system that we need to really accelerate all our work on this.

Marc Filippino
Hmm. So what exactly are they worried about, Katie? What are they warning about?

Katie Martin
What the FSB chair was saying is, among other things, there are what he called “significant data gaps” that make it hard to see exactly how enmeshed crypto is in the rest of the financial system. So to an extent, they’re flying a little bit blind, and one of the things that they’re worried about, apart from the risk of consumer harm, which is a serious concern for organisations like the main regulator in the states, the SEC is, you know, quite aside from the consumer protection angle, they’re saying, look, we don’t know. But we think that if there was a large adverse event in the crypto market that could affect other asset classes, other asset prices, this whole thing is a little bit untested. We don’t really know what would happen if there was a huge move up or down in the crypto price, but it is possible that it could move around share prices. It could effectively affect, you know, everybody’s pensions, everybody’s savings. It could affect the stability of the system as a whole. And this is something that we need to really start thinking about.

Marc Filippino
But so potentially really dire consequences. What direct actions does the Financial Stability Board want?

Katie Martin
So the line effectively is that this is the year where we really step up international cooperation to set some ground rules around how this market works, now that the issue, as the FSB is saying, is that pretty much anybody with a huge server can set up camp in any country anywhere and start firing out crypto coins that you can purchase anywhere else in the world. And so it doesn’t make sense for national regulators to try and deal with this on their own. It’s really worth bearing in mind with things like government bonds or stocks or corporate bonds or whatever. You have a fairly well understood set of factors that can move around the prices of these things. Crypto moves around based on whatever it was Elon Musk last tweeted. Whatever it is that the Russian central bank says about crypto mining and its country, you know, it’s a whole set of metrics that we’re just not used to dealing with and that are incredibly difficult to predict. So it’s a real challenge to policymakers.

Marc Filippino
Katie Martin is the FT’s Markets editor. Thanks, Katie.

Katie Martin
Pleasure.

Marc Filippino
And where would cryptocurrency investors be without cryptocurrency miners whose efforts helped power the furiously hungry computers that penned for digital coinage. Miners are everywhere, even in the far reaches of Siberia.

Polina Ivanova
You can’t really see it until you spot the bitcoin graffiti on the walls, or you start listening in to conversations in cafes and in the local corner shops where everybody is talking about their household mining.

Marc Filippino
The FT’s Polina Ivanova travel to Irkutsk. She found a whole cottage industry of DIY miners, not just in the city, but also in surrounding villages.

Polina Ivanova
In the villages people have, you know, large numbers of these machines whirring away, sometimes hiding them behind, you know, piles of logs or behind chicken pens you know or in the basement somewhere. So you see these very sort of normal-looking Siberian villages and then you ask someone, where’s the nearby miner, you know who’s mining near here, and they’ll point you to a little wooden cottage where you can just hear the hum coming from the house.

Marc Filippino
That is absolutely wild, Polina. I mean, look, what a picture. So where do they get the equipment?

Polina Ivanova
They buy online these asset machines and they sort of plug them in next to their microwaves or next to their washing machines. And they power a few of those off the normal electricity grid, mine a bit of bitcoin, and it’s a bit of extra income to the family, to their homes.

Marc Filippino
Now Polina what about this region makes it so conducive to crypto mining?

Polina Ivanova
Well, so it’s the cheapest electricity rates in all of Russia, and electricity is the most costly element of mining cryptocurrencies for various historical reasons, including the fact that it has these powerful rivers going through the region and big dams on those rivers producing a lot of cheap electricity. It’s an area with traditionally the cheapest rate of electricity in the country. It’s also helpful that it’s very cold in the winter. Bitcoin mining, crypto mining produces a lot of extra additional heat. And, you know, operating these crypto farms in areas where it’s cold, where the climate isn’t as naturally cold, reduces your kind of air conditioning and ventilation costs because it really does get very cold.

Marc Filippino
Now, have these bitcoin mining efforts change the region much?

Polina Ivanova
Yes. So people in Irkutsk talk about it creating a middle class to some degree. A lot of people are getting involved in a small kind of local level. You know, this isn’t big business. It’s really sort of household business. I mean, some people are doing it on a big scale, but a lot of people are just, you know, mining in their kitchens and it’s producing an additional stream of income. One person that I spoke to said around his friends he could see that it was bringing in something like, you know, three or four times the average salary per month additionally to their income. And the investment that you’re putting in is not very high. These machines don’t cost that much, and within a few months, you’ve got a return on investment and you’ve started making extra cash.

Marc Filippino
Wow. So it elevates household incomes. It heats homes. Any drawbacks?

Polina Ivanova
Yeah, for sure. So this all sort of became a very heated topic in the summer of last year when the boom really, really kicked off because people are using a large amount of electricity more than the grid is accustomed to. And this started leading to whole villages getting power cuts. And then it started getting to the point where local stations like small stations and local neighbourhoods were starting to catch fire. What people are doing is using the household electricity rate, which is not supposed to be for commercial gains. So the argument is that people should be paying the commercial rates for electricity, which is slightly higher and makes, you know, a lot less obvious. Obviously profitable to mine bitcoin at home at a small scale. So this is what the electricity company is pursuing. And currently it looks like some sort of regulation will be introduced within potentially in the next few weeks.

Marc Filippino
Polina Ivanova is the FT’s Moscow correspondent. Thanks, Polina.

Polina Ivanova
Thanks so much.

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Marc Filippino
Before we go, we will leave you with the price of the most well-known of cryptocurrencies. Bitcoin yesterday fell more than six and a half per cent around the time US trading closed to about $41,000 a coin. That is significantly lower than where it was at the start of this year and well off its all-time high of $68,000.

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You can read more on all of these stories at FT.com. This has been your daily FT News Briefing. Make sure you check back next week for the latest business news.

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The FT News Briefing is produced by Fiona Symon and me, Marc Filippino. Our editor is Jess Smith. We had help this week from Peter Barber and Gavin Kallmann. Our executive producer is Topher Forhecz. Cheryl Brumley is the FT’s global head of audio and our theme song by Metaphor Music.

This transcript has been automatically generated. If by any chance there is an error please send the details for a correction to: typo@ft.com. We will do our best to make the amendment as soon as possible.