Venezuela - Digital asset mining is growing
The issue is that investors still face sanctions risk with Maduro’s government. Access to financing is difficult too.
What’s happening? A group of digital asset miners are taking advantage of Venezuela’s abundant, untapped electricity resources. The problem is that capital is scarce and even though Maduro’s government has dollarized and opened doors for private investment, the US sanctions applied to high-ranking officials make doing business there complicated.
Who is involved? Venezuela’s digital asset miners are producing 2 exahash per second (EH/s) and have access to 500MW of electricity generation, according to Venezuelan digital mining CEO Theo Toukoumidis in this April interview. It’s an important number. Canadian Bitfarms, one of the main North American miners active in Paraguay and Argentina, is tapping 137MW to mine 3 petahash per second (PH/s). It also suggests that Toukoumidis’ digital asset mining pool, a company called DoctorMiner, has found success at bringing capital into Venezuela for mining digital assets. He claims that at least four digital mining companies are involved.
How does Venezuela compare to others in the region? Venezuela’s advantage is its low-cost energy and the composition of its energy matrix. Venezuelan state-run CORPOELEC operates the 10.2GW Guri hydro-electric dam, the country’s main source of electricity. Since an economic crisis starting around 2013, Guri has been an ill-maintained and under-utilized source of renewable power. Separately, there is a back-up network of thermal power plants built for drought season when Guri’s levels are low. These natural gas-fired thermal generators make up a decentralized park across the country.
The opportunity for digital asset miners is obvious. There is an abundance of low-cost renewable energy in Venezuela. There are also several industrial parks where miners are legally permitted to tap the backup thermals. Thermal generators at Barquisimeto and Valencia are two of the main industrial sites where DoctorMiner is hard at work.
But sanctions mean constraints. The caveat is how to get large amounts of capital into the country without scraping up against sanctioned individuals and government agencies. For instance, miners need permits from SUNACRIP and other government agencies. But US sanctions mean that any transaction that suggests an engagement with Maduro’s government could ensnare a digital mining project.
That means that access to financing is difficult too. Likewise, if crypto miners want to export their revenues, that means trustworthy, compliant exchanges are not available for selling. Instead, miners must turn to local exchanges with SUNACRIP permits. With the head of SUNACRIP sanctioned by the US, it is hard to justify using those exchanges for miners who want to comply with international norms.
The outlook is brighter but still complicated: There’s a possibility that investment into Venezuela is made easier if president Nicolas Maduro agrees to a deal with the US: lifting sanctions in exchange for a pathway toward free and fair elections. The US has already restarted these talks in the wake of Russia’s war on Ukraine. Biden’s government might lift a ban on oil imports from Venezuela. If it manages to meet US oil demand in the wake of Russian oil sanctions, Venezuela’s economy could grow 20% in 2022.
But heavy Venezuelan crude is just as important for Washington as is a stable Venezuela to produce it. Biden might lift the ban, but he won’t relax sanctions on the figures and agencies important to digital asset miners if Maduro doesn’t meet Washington’s political conditions. Until any relaxation of sanctions, it’s probably going to be cowboy capitalism for digital asset miners in Venezuela.
It would be unsurprising if the entrepreneurs injecting capital into Venezuela turn out to be the sorts who thrive on taking signficant political risk for low-cost electricity - an echo to the 20th century of risky Western oil drillers in politically fraught countries around the world. DoctorMiner is playing an important role by handling the service of bringing digital miners into a country where operating there is no doubt a very risky endeavor.