At the end of August, a digital platform called ECOS Free Economic Zone delivered good news from a country that rarely sparks on the global crypto map — Armenia. ECOS reported adding 60 megawatts (MW) of capacity to its power plant-based facility, operating since 2018. 

Situated at one of the hydroelectric plants on the Hrazdan river, the mining facility gets its electricity supply directly from the high-voltage grid and uses the site’s infrastructure to power containers. The platform’s representatives noted that ECOS could expand to an additional 200MW of clean electricity. For comparison, the Berlin Geothermal plant in El Salvador gives away 1.5MW of the 102MW it produces to crypto miners, while the Greenidge Generation near the shore of Seneca Lake in the State of New York should have produced about 44MW.

Given the controversial developments with crypto mining regulation in the Commonwealth of Independent States (CIS) region — countries of the former Soviet Union — perhaps it is high time to assess the industrial potential of this post-Soviet republic, towering 1,850 meters above sea level.

Modest publicity

The most certain fact about Armenia regarding crypto is that we don’t get much information from the country. In 2018, the Armenian Blockchain Association joined its counterparts from Switzerland, Kazakhstan, Russia, China and South Korea in filing a joint lawsuit against tech goliaths such as Google, Twitter and Facebook for banning crypto-related advertising. The lawsuit’s further destiny is unclear, though the restrictions on crypto ads have been uplifted at least to some extent in recent years. 

The same year, Prime Minister Nikol Pashinyan and other top officials reportedly attended the opening ceremony of a new mining farm touting itself as one of the world’s largest. By local media estimates, around $50 million had been invested in the creation of the farm with 3,000 Bitcoin (BTC) and Ether (ETH) mining machines and a planned capacity of 120,000 in the future. The farm is a joint venture by major Armenian conglomerate Multi Group, founded by businessman and politician Gagik Tsarukyan and controversial international mining firm Omnia Tech. No updates about the work of the farm have hit the media radar since the very opening press releases.

Perhaps the most important and publicly visible development from the country of three million was the failure of efforts to form a shared stance regarding cryptocurrency regulations by the Eurasian Economic Union (EAEU). In 2021, a high official from EAEU revealed that member states did not support a recent initiative for a uniform cryptocurrency regulatory framework within the union. While no insights on what exact members sabotaged a project are available, the failure itself will have a long-lasting impact on the whole region, as the EAEU includes not only Armenia and Belarus but also such mining heavyweights as Russia and Kazakhstan.

Large ambitions

While there are no traces of the existing legislative framework on crypto in the country (and no prohibition as well), Armenia stepped on its regulatory path back in 2017 by forming a committee on blockchain technologies. 

In 2018, the local Ministry of Finance launched a working group called JAF Crypto Market Intelligence Unit (JAF CMIU), whose task was to study possible regulatory scenarios. That same year, a special Free Economic Zone (ECOS) was established by the government decree to help attract and develop blockchain and crypto startups.

The potential residents of the 2.2-hectares ECOS are granted the financial benefits of zero value-added tax (VAT), the absence of import and export duties and no tax burden on property and real estate. As the official page goes, the ECOS also offers multifunctional workspaces, a research and development center, acceleration programs and the infrastructure comprised of a power plant, data center and mining farm with Bitmain equipment. The only tax to which the zone residents are subject is a monthly payment of income tax for employees.

The mining capacities of the free economic zone are secured by the electricity from the Hrazdan Thermal Power Plant, situated in a mountainous region of Armenia with a low average annual temperature, making it advantageous for cutting cooling costs.

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Speaking to Cointelegraph, ECOS marketing manager Anna Komashko cites the latter fact as a serious advantage, nodding to the recent problems for miners in Texas after a scorching heatwave in the Southern state. As she specifies, currently 60% of the Armenian facility’s 260,000 users are from the United States and Europe.

A mountain of mining?

Armenia posseses at least two large mining facilities, one of them marketing itself as state-of-the-art. The country’s government also seems moderately friendly toward crypto, albeit without any concrete legislation being considered. But is this enough to consider the nation particularly attractive for investments?

Perhaps such broad factors as the country’s ascendance in transparent governance ratings, the large intake of IT specialists who’ve left Russia, and the natural leaning to attract the high-tech and service businesses in the absence of significant hard industry could also work in Armenia’s favor.

But, with crypto mining, the decisive importance still lies in the realm of the material, i.e., the overall energy profile of the country.

Data from a 2021 study by the DEKIS Research group at the University of Avila ranks Armenia 56th in the global crypto mining potential ranking. The position itself isn’t too low — for example, with all its gargantuan ambitions, El Salvador occupies only line number 73. Kazakhstan, which for a short period became the prime spot for Chinese miners, sits at 66th, and Iran ranks 115th.

But more interestingly, by its potential, Armenia outranks neighboring Georgia (83th), which has established itself as a mining hub and by 2018 ranked second around the globe in Bitcoin (BTC) mining profitability.

However, one might question the DEKIS report itself as, according to its data, both mountainous countries possess near to zero amount of renewable energy (0% in the case of Georgia, 0.1% in Armenia, to be precise). Speaking to Cointelegraph, Arcane Research analyst Jaran Mellerud recited remarkably different figures:

“In Georgia, 75% of the electricity is generated by hydropower, while this number is only 31% in Armenia.” 

These numbers, Mellerud believes, make a difference for potential miners who naturally seek cheaper energy. While hydropower has almost zero marginal production cost, natural gas and nuclear power — which still form a total majority of power supply in Armenia — are way less convenient for collateral use. After all, Mellerud can’t consider the country as an especially attractive direction for foreign mining due to local prices: 

“The problem is high electricity prices, especially now when natural gas prices are going through the roof, and a significant share of Armenia’s electricity is generated by natural gas. I was in Georgia this summer, and even there, miners are leaving the country.”

By 2021, the price per kilowatt hour (KWh) of energy in Armenia amounted to $0.077, which was relatively lower than in developed markets (take an example $0.372 in Germany or even $0.15 in the United States), but still higher than in Kazakhstan ($0.041), Uzbekistan ($0.028) or Iran ($0.005). With the inflation of global energy prices, the numbers may change significantly, but it hardly would lead to significantly different outcomes.

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According to the country’s profile from International Energy Agency (IEA), Armenia is heavily dependent on Russia in terms of its consumption, importing around 85% of its gas and all of its nuclear fuel from there. All in all, it relies on fuel imports from one country to produce nearly 70% of its electricity, “raising concerns about the diversity of supply.”

As a report from OCCRP suggests, even the rising amount of small hydroelectric plants provided only 9% of consumed energy by 2013, with environmental scientists raising concerns about these plants endangering local rivers’ water balance.