The US Treasury Department imposed sanctions on crypto mining company BitRiver, targeting one of the industry’s largest data-center service providers over its operations in Russia in its first such action.
The Switzerland-based firm offers energy sources, mining facilities and large-scale management solutions to Bitcoin miners across the world, including those in Eastern European and Russia. Such regions have been among one of the most popular destinations besides North America for miners that were forced out of China due to Beijing’s crypto mining ban last May.
Treasury’s action comes just a day after the International Monetary Fund warned in a report that cryptocurrency mining could offer a pathway for countries, like Russia and Iran, to bypass sanctions by putting natural resources they are unable to export toward energy-intensive mining operations, such as Bitcoin mining.
Treasury echoed those concerns Wednesday in a news release announcing the restrictions on BitRiver, including 10 of its Russia-based subsidiaries, as the war in Ukraine enters a third month.
“By operating vast server farms that sell virtual currency mining capacity internationally, these companies help Russia monetize its natural resources,” the department said. “However, mining companies rely on imported computer equipment and fiat payments, which makes them vulnerable to sanctions.”
Last year Bitcoin mining generated an average of about $1.4 billion in revenue per month, of which about 11 per cent might have gone to Russian miners, according to the IMF.
BitRiver has not responded to a request for comment from Bloomberg.
The sanctions on BitRiver could have an impact far beyond the crypto mining industry in Russia, by potentially redistributing and reducing the computing power for Bitcoin mining across the globe, said Roman Zabuga, chief marketing officer at Hamburg-based BWC, a data-center operator for crypto miners.
If the computing power from the sanctioned businesses is disrupted, it will leave fewer places for miners to turn to for hosting their operations. The nearest mining facilities are in Kazakhstan, which has its own issues, while the U.S. and Canada do not have readily available data centers and Europe is expensive, Zabuga said.
Meanwhile, miners that are not involved with BitRiver could potentially earn more Bitcoin with the same computing input, or hash rate, because the difficulty to mine Bitcoin would drop with less competition from BitRiver’s miner clients. This could set up a repeat of what happened after Beijing’s ban on crypto mining last May, which resulted in a sharp drop in global computing power and a multibillion dollar windfall for miners in North America.