Bitcoin Mining Benefits Insufficient to Justify Huge Costs

Mar 16 , 2024
By Amanuel Dessalegn

With a power generation capacity that falls short of even domestic demands, the venture into energy-intensive Bitcoin mining should raise significant questions about sustainability and economic priorities. The allure of Bitcoin mining has drawn not only Ethiopia but also other countries like Kazakhstan, with mixed outcomes writes Amanuel Dessalegn ( a researcher based in France.

Ethiopia has become the latest country to open its doors to the crypto mining industry, with 21 companies granted licenses. Ethiopian Electric Power (EEP) executives recently disclosed that more Bitcoin miners are waiting for permits. Attracted by low electricity costs—a crucial factor for the profitability of mining operations—Ethiopia has emerged as one of the leading destinations for Bitcoin mining equipment, otherwise called "rigs" in the industry's parlance.

Ethiopia’s embrace of Bitcoin has been met with a euphoric reception from industry enthusiasts. After all, opening up this new frontier was a godsend for a sector recently going through difficult times following China’s decision to ban crypto mining and transactions. It is 'a potential game changer' for the industry, and others are even backing Ethiopia to rival Texas as the world's leading mining destination.

Initially intended to power industrial development, the Grand Ethiopian Renaissance Dam (GERD) is now seen as a potential source of cheap electricity for mining operations.

However, the excitement surrounding this ‘game-changing’ development is misguided at best. For one thing, it is built upon the wrong assumptions, the biggest of which is Ethiopia's supposed abundance of clean electricity. Advocates of Bitcoin mining, including a few Ethiopians in the sector, claim the glut of clean electricity without giving much thought to the facts, either due to a lack of understanding of the country's energy landscape or a dishonest attempt to mislead the public in the hopes of preempting potential resistance.

The stories painting Ethiopia as overflowing with clean electricity are cartoonishly exaggerated. On a closer look, Ethiopia does not even produce enough electricity to power its economic activities and household demands, let alone generate a surplus to power a huge Bitcoin mining ecosystem. It has 5,200Mw of installed electricity generation capacity for over 100 million people. Vietnam, in contrast, has more than 80,000Mw of installed generation capacity, while the corresponding number for China is 2.9 million megawatts.

The picture gets bleaker once we consider per capita power generation. At 122kWh, Ethiopia is among the bottom-ranked countries in the world. The African and global averages are 626kWh and 3,594kWh, respectively. Almost half Ethiopia's geographic area has yet to be connected to the national electricity grid.

Nonetheless, Ethiopia is not the first country to hastily embrace Bitcoin mining.

Kazakhstan opened its doors to mining firms allured by easy foreign currency earnings and the hope of restoring its economy through investments in the ICT sector. It immediately became the second biggest jurisdiction of Bitcoin mining in 2021, after China. At its peak, it contributed 18pc of the global computing capacity dedicated to bitcoin mining, or "hash rate" in the industry jargon. However, the optimism faded very quickly when the mounting power demand of the industry began to put enormous pressure on the country’s power grid.

The sudden surge in power usage caused blackouts in large parts of the country, forcing the government to import electricity from neighbouring Russia at inflated prices in a desperate attempt to save the electricity infrastructure from collapsing. The blackouts fuelled public anger directed at the government, leading to the political unrest of January 2022. In the weeks following the crisis, the government cut off most Bitcoin miners from the national grid. It imposed strict regulations, including the removal of tax benefits, on the industry, compelling most miners to leave the country for greener pastures.

Khazakstans’ experience should serve as a cautionary tale to Ethiopia.

Owing to its Soviet infrastructure, Khazakstan produces five times more electricity than Ethiopia for its 19 million people and has 100pc household electricity coverage. Indeed, it had excess capacity before mining rigs started guzzling power.

The consumption of electricity by the Bitcoin industry comes at the expense of other sectors essential to long-term economic development. Even without introducing such a power-intensive industry, the government has failed to provide a reliable electricity supply to businesses, particularly those in the manufacturing sector. Allocating hundreds of megawatts of electricity to Bitcoin mining, as reported by industry sources, will inevitably aggravate the problem. The few million dollars expected from selling power to mining operations cannot justify the outcome.

Even with the expected doubling of electricity output with the completion of the GERD, the electricity supply is too limited to support a modern industrial economy. Much more power output will be needed to realise the rapid industrialisation essential to providing jobs and better living conditions for the fast-growing population.

Allocating preciously scarce electricity to an industry that promises little in jobs and social contributions will sacrifice long-term development in pursuit of uncertain short-term gains. It would be a dereliction of duty on the part of the federal government, for a country of Ethiopia’s size and development to tie its hopes to a speculative sector that is unwise to depend on to provide sustainable returns when resources could be allocated to sectors tried and tested in creating jobs and fostering growth.

If the government still wants to achieve meaningful economic development, it needs to make decisions that align with those ambitions. Increased electricity generation should be used to power manufacturing, which will, in turn, provide jobs to the growing population, increase exports, and foster technological learning. The country cannot afford to waste scarce resources on sectors that do not contribute to its long-term development.

Decisionmakers should also be wary of the potential role of cryptocurrencies such as Bitcoin in creating avenues for corruption and illicit financial transactions. The untraceable nature of Bitcoin transactions makes it the ideal medium for illegal transactions such as bribes to officials or criminal activities. After all, the industry is notorious for preying on politically unstable countries with high levels of corruption and weak regulations. There is also the threat of illegal or ‘grey’ mining operations outside the public eye, putting pressure on the power grid.

This is not a far-fetched concern as there have been several instances of miners setting up illegal operations, usually through illicit manners, in several countries, including China. There are reports of Chinese firms setting up mining facilities under the cover of manufacturing and agricultural investments.

The efforts to persuade the authorities to adopt Bitcoin as a legal tender and hold it as a reserve currency are self-interested attempts to steer policy in favour of the industry rather than public-spirited advocacy as those groups would have us believe. Bitcoin enthusiasts make lofty promises such as freeing the country from the shackles of fiat currencies and the dollar-dominated international financial system and promoting financial inclusion.

However, Bitcoin depends on fiat currencies in essence. Its use almost relies entirely on its holders’ ability to convert it to a fiat currency. There is hardly any situation where a country can conduct international trade in Bitcoins without involving some form of fiat currency, which requires using the existing financial system, from which we are promised to be freed.

Bitcoin, or any cryptocurrency, is not immune to regulations or sanctions as its proponents claim. Powerful countries can still regulate and ban them altogether or put more expansive measures in place, such as sanctioning those using them outside their territory. This is not hard to imagine as we are accustomed to how sanctions such as those of the US government can be far-reaching to the point where they can affect transactions that do not involve US entities.

It is also too naive to believe that fiat currencies will soon cease to be the medium of international trade. No serious country, particularly those with a formidable share in global trade, will forego the advantages that come with their currencies in favour of a decentralised digital currency.

The promise of financial inclusion cannot also be more than speculative. Better and easier-to-use alternatives exist in the form of mobile money platforms, and traditional banks are also providing an array of web-based services that are more predictable and highly secure. It is not easy to believe that people not savvy enough to use mobile money services like Telebirr and M-pessa could benefit from a speculative asset like Bitcoin.

Its supposed benefit of helping the country ease its foreign currency shortage is also not backed by enough evidence. We do not have any evidence of countries that made foreign currency from the industry large enough to justify the opportunity cost. The bottom line is that Bitcoin mining has enormous costs to the environment, the economy, and social welfare, and its benefits are insufficient to justify those costs.

PUBLISHED ON Mar 16,2024 [ VOL 24 , NO 1246]

Amanuel Dessalegn ( is a researcher based in France.

How useful was this post?

Click on a star to rate it!

Average rating 0 / 5. Vote count: 0

No votes so far! Be the first to rate this post.

Put your comments here

N.B: A submit button will appear once you fill out all the required fields.

Editors' Pick


Fortune news