A slew of laissez-faire characteristics has combined to create an advantageous atmosphere for bitcoin mining in Georgia.
Who would have imagined that a little country in the Caucasus Mountains would become one of the global leaders in bitcoin mining?
Georgia, despite its tiny size and population, has become a popular cryptocurrency mining location due to its affordable electricity, lack of legal restrictions, and significant tax incentives. This confluence of circumstances has attracted not only Georgian people but also foreigners interested in giving cryptocurrency mining a shot.
Georgia’s economy is growing rapidly but has not yet reached the level of wealthy countries. Georgian authorities established a Free Economic Zone (FEZ) in Tbilisi, the country’s capital, in 2015 to attract foreign investment and stimulate the economy.
This step proved to be beneficial for the bitcoin industry. By 2018, the country was rated second in terms of Bitcoin (BTC) mining profitability.
The low cost of electricity attracted foreign investors, including the Dutch company Bitfury, a leading industrial miner around the globe. It opened its first data centre in Gori in June 2014, with a capacity of 20 MW. Bitfury opened a larger (40 MW) data centre in Tbilisi’s Gldani area in December of the following year. As a result, the company boosted its capacity to 60 MW in Georgia.
The mining business became the administrator of Tbilisi’s Free Industrial Zone, which issued 18 hectares of property for $1 (R 15,53). Along with low-cost electricity, Bitfury registered the company in the zone to take advantage of tax breaks, circumvent currency laws, and gain access to lower-cost utilities and other services.
Additionally, Bitfury highlighted its involvement in integrating blockchain technology into state registries. Georgia became the first country in the world to implement blockchain technology in its official land cadastre in 2017. At the start of 2019, the government decided to offer education credentials via blockchain technology.
The success of Bitfury sparked the interest of a large number of Georgians, who began aggressively acquiring powerful GPU cards and establishing their own little mining farms. According to a World Bank estimate, over 200,000 people in Georgia were involved in cryptocurrency mining in 2018.
Until recently, the Georgian state exerted no influence over the circulation of digital money. Several times, representatives of the country’s central bank have stressed that caution should be exercised while dealing with cryptocurrencies, as they are not legal cash.
By 2019, the significant impact of this sector on the country’s economy had prompted the Georgian Ministry of Finance to explain the taxation of cryptocurrencies.
Individuals in Georgia are tax-exempt on earnings earned from the sale of cryptocurrencies, and the sale of cryptocurrencies or their exchange for lari (the national currency) or another currency is exempt from the 18 percent value-added tax (VAT).
Additionally, the sale of computing power from Georgia to other countries is not subject to VAT, although the sale of computing power within Georgia is.
Unlike people, corporations are taxed on earnings earned on a global scale. As a result, if a Georgian business earns money from cryptocurrency transactions, it will be required to pay a 15% tax on the transaction. However, if a business does not fix profits, does not pay dividends, and invests all of its earnings in its development, it is exempt from corporate income tax. In addition to the VAT, income from the purchase or sale of hash to a non-resident is taxed at a 10% rate if it originates in Georgia.
Apart from taxation, the country currently lacks a defined regulatory framework for cryptocurrencies.
Additionally, any business in the FEZ may seek a cryptocurrency license. The license takes only 5-10 days to obtain and is issued in the form of a limited liability corporation or a joint-stock company, with founders from any country. The license specifically grants the authority to write off and enrol funds in accounts, create digital money, and to perform payment and transfer services using digital money.
Nonetheless, certain authorities in Georgia have shifted their focus to the bitcoin business. Natalia Ivanidze, head of the National Bank’s financial innovation unit, said that the regulator will be more proactive in this area:
“At the time, trading virtual currencies is not a regulatory area for the National Bank of Georgia, according to ‘The Organic Law of Georgia on the National Bank of Georgia.’ However, we would like to inform you that regulation of this industry is envisaged in the future.”
Earlier in 2021, the National Bank of Georgia revealed that it was considering launching a pilot program for a central bank digital currency (CBDC) called the digital lari. As is customary with bank-issued digital currencies, the digital lari would not be a cryptocurrency but rather a cash-like progression. It could not be mined, and the National Bank would be the sole issuer.
The digital lari is intended to be introduced for retail sales first. The National Bank believes that introducing a national digital currency will assist improve the payment system’s efficiency and financial integration.
Every business is complex, and cryptocurrency mining in Georgia is no exception. Following the establishment of mining farms in Tbilisi’s Free Economic Zone, various problems arose regarding both the business and the zone’s validity.
Some citizens believe that crypto miners and fans contribute nothing to the country and take advantage of the FEZ’s tax benefits.
Unregulated digital currency creation and unregulated electricity use result in frequent power outages in some areas of Georgia, much to the chagrin of the country’s population.
The Svaneti region suffers the most. This region is completely excluded from power payments in order to support rural and distant towns and villages. As a result, it’s unsurprising that roughly 1,000 miners appeared there so soon. Their sophisticated computers began to consume nearly all of the region’s electricity, resulting in the loss of light in homes, hospitals, and schools.
Such instances are not prevalent throughout Georgia, but they do not deter miners, as this line of business is not expressly outlawed by regulators. Additionally, for many Georgians, bitcoin mining is a very passive source of extra income, as mining rigs may be put up in basements, garages, hangers, and flats.
Mining in Georgia has been and continues to be popular due to obvious benefits such as cheap electricity, but the issue remains as to how long this will continue.
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