Despite Bitcoin's plunge, thousands of Georgians sold cars to buy computers to exploit Bitcoin; About 10% of the country's energy production goes to Bitcoin mining

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TBILISI, Georgia – For three years, a windowless warehouse on the outskirts of the city has been brewing with enough energy to power nearly 50,000 homes. Day and night, the warehouse and dozens of containers in a windswept valley generate Bitcoin, the cryptocurrency that has created a real gold rush in the former Soviet Republic of Georgia.

Bitfury, a US-based technology company, generates millions of dollars in digital money using ultra-compact hydropower harvested from the waters of volcanic peaks in the Caucasus. Even though the value of the currency fell, thousands of Georgians got into the game and sold cars – even cows – to buy high-powered computers to exploit Bitcoin and join what is has become a race for data supremacy backed by the state.

A former prime minister encouraged Bitfury with a loan of $ 10 million in 2015. The ruling party, the Georgian dream, sold 45 acres for 1 dollar to Bitfury to settle. The government has sold energy at a rate half as much as in the United States or Europe, and has created free zones to attract tech-savvy entrepreneurs.

The efforts gave Georgia, with 3.7 million inhabitants, a dubious distinction. It is now an energy consumer, with nearly 10% of its energy production invested in monetary strategy. The country has consumed so much energy in recent years that the World Bank has ranked it among the most active cryptocurrency sites in the world.

The whole experience should face immediate challenges as the price of Bitcoin drops, after a dramatic rise that would have caused investors around the world to bet on crypto-currencies.

Most companies tend to lose money when the price of bitcoin is lower than the cost of energy, and mining companies around the world have recently declined. The largest mining company, the Chinese company Bitmain, has closed offices and dismissed workers. Last week, Bitfury announced layoffs at a facility in Canada.

Georgia, however, is betting that its economy relies on blockchain technology, the encrypted storage capacity behind all encrypted transactions.

Bitfury helped migrate most of the Georgian land register to the blockchain, making the government one of the first to rely on the secure digital ledger. His tax system could soon follow. Georgia aims to beat Malta, Bermuda and other countries known for their light regulation of crypto-currencies in order to dominate the development of the blockchain.

"The digital transformation of the economy is our number one priority," said George Kobulia, Minister of Economy. "We support that in every way possible."

In downtown Tbilisi, a neon-lit Marriott welcomes tourists. A nearby shopping mall has installed a special A.T.M. for Bitcoin withdrawals. A cryptocurrency exchange flashes the prices of Bitcoin, Ether and other digital currencies on a ticker.

When street protests drove out the last ruler of the Soviet era in 2003, the government, which fought against poverty, corruption and rampant bureaucracy, began selling itself as an outpost. low tax investment and business friendly. Major financial institutions have entered. Casinos too. Bitfury, a risk-averse private company, was founded in 2011 by a technology expert from Latvia who was proselytizing about a strange virtual sector.

Remi Urumashvili, a well-connected lawyer and now Bitfury's senior representative in Georgia, said that when Valery Vavilov, co-founder and CEO, asked him for advice on creating a cryptocurrency operation, he was confused.

"They told me that they wanted to exploit Bitcoins and I asked them," Hey, guys, what's a Bitcoin? " ", Is recalled Mr. Urumashvili.

Mr. Vavilov told him that the currency had introduced a new technology, the blockchain, which could be widely used in business. Mr. Urumashvili said he saw a potential tax advantage.

"They explained that it is money that exists on the Internet," he said. "So I said," If something does not exist in reality, the tax may be zero. "

Mr. Urumashvili has worked hard to lobby lawmakers to keep Georgia an open market for cryptocurrency. "I do not like regulation," he says, arching an eyebrow. "And there are very few regulations here for anything.

As soon as Bitfury opened, Georgia created "free economic zones" where mining and electricity were not taxed. When Bitcoin and other encrypted currencies were exchanged for dollars or pounds, Georgia considered the exchange as a value-added tax-free export, so Bitfury could keep every penny of its revenue.

According to rumors, Bidzina Ivanishvili, former prime minister of the Georgian dream party and the richest oligarch in the country, would have been a secret beneficiary of the digital experience. He made a $ 10 million loan to Bitfury through his investment fund when Bitfury Vice President George Kikvadze sat on its investment board.

Mr. Ivanishvili refused an interview. Mr. Urumashvili of Bitfury said that no law had been violated to encourage Bitfury and that the loan of the former prime minister had been repaid. He has no other link with Bitfury, Urumashvili added.

The government has even extended an entire power plant located next to the Bitfury facility to be able to pump electricity at no extra cost. With energy prices of 5 to 6 cents an hour, Bitfury and its supporters could consider prosperity, if not around the corner, somewhere beyond the fog of Georgia's mountains.

When Bitfury arrived in Georgia, a bitcoin was worth about $ 350. He reached almost $ 20,000 before switching. Big players like Bitfury have bandwidth to keep running. But the smaller investors have been much more vulnerable.

In Georgian villages, around 200,000 people have been able to install mining computers in basements and garages. For young people especially in a tough economy, Bitcoin seemed an attractive alternative to make ends meet.

George Kirvalidze, 35, a former owner of a small Internet company in the city of Kvareli, was three hours from Tbilisi in the Georgian wine region.

About half of the city's 6,000 households have some kind of mining platform, he said.

"Most people who thought that the highest prices would last forever," said Kirvalidze, who has managed to exploit 20 bitcoins.

Even the farmers were involved. "At one point, it was more profitable than owning a cow," he said. "Now it's not so safe."

Cryptocurrency is experiencing a storm of mathematical calculations. Computers, or miners, all over the world are competing to solve complex formulas in the blockchain. When a mining computer gets the right answer, it receives a pack of new Bitcoins as a reward.

The constant overheating of computers and the demand for energy – to power and cool them – have exploded in places where such currencies are sought.

To save energy, Mr. Kirvalidze created a mining pool with nine friends, who grouped their machines in a friend's garage. One November afternoon, 15 of the 60 miners were turned off because bitcoin prices had fallen too low to justify their energy consumption. Others would close if prices continued to fall, he added.

"Bitfury is one step ahead of us," Kirvalidze said, citing the company's state-of-the-art technology and near-state support for Georgia.

"If we could also get cheaper energy prices, we could do more," he said. "This would increase the flow of money into the economy and possibly improve growth."

Forty-five minutes from the center of Tbilisi, trucks swarm on two-lane roads and pass faded pink and yellow towers. A jail, in the colors pink and yellow, darkens a pasture of cow. In the middle of the valley stand the gray limits of Bitfury, resting on a strip of concrete of more than 40 acres protected by guards and a high wire fence.

In a warehouse as big as a Walmart, Ilia Koranashvili, a muscular engineer with a snake tattoo, ran about 160 hermetically sealed stainless steel tanks, filled with energy-efficient chips and a special coolant. The tanks are a Bitfury experiment aimed at reducing energy costs and making the mining business profitable virtually anywhere, said Mr Koranashvili, who heads the Bitfury surveillance team.

Industry estimates suggest that the company extracts just over 5% of all Bitcoins, although no one can say how much has been mined here.

But competitors in Georgia believe that it was a fortune. Vakhtang Gogokhia, managing director of Golden Fleece, a small cryptomining company, announced that he was returning about 10 Bitcoins a month using a megawatt of energy, enough to light 1,000 homes. Bitfury says that it constantly consumes at least 45 megawatts of energy, although Mr Gogokhia suspected that it was over.

Critics say the government, by subsidizing operations like Bitfury, scam taxpayers by forcing them to pay the bill for well-connected businesses.

Zurab Tchiaberashvili, a lawmaker of European Georgia, the largest opposition party in parliament, said the government 's generosity towards Bitfury had deprived Georgians of millions of tax revenues.

"It's a huge conflict of interest," he said.

Mr. Urumashvili has swept away such concerns. "Bitfury has given our country a lot of things, including a path to the future," he said. "When you have a ticket to access the world map, you have to use it," he added.

Nevertheless, as Bitcoin prices highlight the uncertain nature of cryptocurrencies, the government does not put all its eggs in one basket.

"Georgia is interesting for cryptocurrency miners," said Kobulia, Minister of Economy. "But would it be a major source of our economic growth? Maybe not."