Author: Amb. Valeri Chechelashvili, Senior Fellow, Rondeli Foundation
Significant trade balance deficit remains one of the main macroeconomic challenges for our country. A good prospect for making the situation healthier is electricity exports. In 2010, net export of electricity amounted to USD 23.5 million and entered the list of largest export categories. Unfortunately, this trend was not strengthened in the following years. 2016 was the last year when Georgia had a negligible, but still positive balance, of USD 0.5 million, in electricity trade. In 2017, Georgia bought record amounts of electricity and same will be true for this year as well.
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In 2017, consumption of electricity in Georgia increased by 7.7% as compared to the previous year while as compared to 2015, growth was 14.4%.
In the past, we have expressed our opinion that the surge in the consumption of electricity in the past two years is connected to Bitcoin mining. The tables show that in 2017, we spent a record amount of USD 48.5 million for also record-breaking 811 million kWh of electricity.
A total of about 1,800 Bitcoins are mined in the world each day, a big share of which is mined by a company registered in Georgia – Bitfury. In total, Georgia amounts to 15% of the world’s Bitcoin mining, which is 270 Bitcoin per day, 100,000 a year. It must be noted that companies other than Bitfury also mine Bitcoin in Georgia and there are no records of their production figures. In addition, Georgia has very favorable conditions for mining Bitcoin, and the cost of mining one Bitcoin is about USD 3,316. The value of one Bitcoin fluctuated a lot in 2017, starting from USD 967 to USD 13,860, with the average value of USD 4,128. In 2018, the values varied from USD 7,013 to USD 10.166, with the average of USD 8,157.
Based upon the abovementioned data, we can presume that a significant amount of Bitcoin with the approximate value of USD 500 million was mined in Georgia in 2017. Other simple calculations also lead to these numbers: USD 4,910,779,489 worth of Bitcoin is mined in the world per year (Source: ); about 15% of this, which is Georgia’s share in world Bitcoin mining, amounts to USD 730 million. The difference can be explained by dramatic changes in Bitcoin value in 2017. A relatively more precise figure is the net value of Bitcoin mined in 2017 – about USD 330 million.
Of course, these numbers could contain serious errors. This could be avoided if Georgian miners of Bitcoin, Bitfury being the first among them, were forced to provide their annual records to the public.
Bitcoin is mainly sold on international electronic platforms, which means that this is an export category and its volume should be somewhere close to the largest export goods categories that Georgia has. Unfortunately, this does not appear in the statistics.
On the other hand, the electricity trade deficit is well documented in statistics. It is recognized that the role of electricity in mining Bitcoin is about 75%. Hence, in 2017, the production of Georgian Bitcoin used up electricity with the overall value of somewhere between USD 375 million and USD 550 million. This is a huge number. Other calculations deliver more modest results. If about 300 kWh of electricity is spent for producing one Bitcoin, and Bitfury pays 19.525 tetris for one kWh of electricity, then its costs the company 19.525 x 300 = GEL 5,857.5 to produce one Bitcoin, which is USD 2,210, by current exchange rate. This amounts to about 67% of the net value of Georgian Bitcoin (USD 3,316). In one year, this adds up to USD 221 million. However, it is clear that the aforementioned amount of electricity is consumed not only by Bitfury but all Georgian mining companies combined.
In any case, the abovementioned amount of money significantly exceeds the electricity trade deficit observed last year. It turns out that if it were not for the electricity used for mining Bitcoin, instead of importing USD 48 million worth of electricity, Georgia would have additional electricity exports resource with the value of about USD 173 million. In 2017, only a couple of export goods managed to go higher than that (copper ore – USD 407 million, cars – USD 309 million, ferroalloys – USD 292 million. For comparison, the export of wine in 2017 amounted to USD 155 million.
Naturally, the state should foster the development of high-tech fields of the economy; however, as of today, a serious export resource is being sacrificed to mine Bitcoin. This export resource is very much needed to the country, given that, as pointed out above, its main macroeconomic challenge is chronic external trade deficit and resulting current account deficit. If a more robust export resource is created in the form of Bitcoin as a result of this, it must be at least counted and documented properly.
Of course, because of the lack of sources of reliable information in the country, our calculations have some flaws. These flaws could easily be overcome in the case of ensuring the transparency of the work done by Bitcoin mining companies. Businesses themselves must be interested in this too. Backstage deals do not foster sustainable development models and are not good for either the state or the businesses. Only transparency, clear rules of play and adhering to them by all parties will foster the development of business, which will benefit entrepreneurs, as well as the state and its citizens.