Who would have thought that a tiny country in the Caucasus Mountains could be one of the top cryptocurrency mining countries in the world?
Georgia, despite its small population and size, has been a popular place to mine cryptocurrency. This is due to its low electricity costs, lack of restrictions on legislation, and attractive tax incentives. These factors have attracted not only Georgian citizens, but also foreigners interested in cryptocurrency mining.
Oasis for miners
Although Georgia’s economy has been growing, it is not at the same level as other developed countries. Georgian authorities created a Free Economic Zone in Tbilisi in 2015 to encourage foreign investment and improve the economy.
This was a huge win for the cryptocurrency industry. In 2018, the country was second in profitability for Bitcoin (BTC), mining.
Foreign investors were attracted to the country by the low cost of electricity, such as Bitfury, a Dutch industrial miner and one the largest in the world. It opened its first data centre in Gori, with a 20 MW capacity, in June 2014. Bitfury opened a 40 MW data center in Tbilisi’s Gldani district in December 2014. The company’s capacity in Georgia grew to 60 MW.
The citadel of Gori. Source: Petrshvili
The administrator of Tbilisi’s Free Industrial Zone was Bitfury, a mining company. 18 hectares were allotted for $1. Bitfury registered Bitfury in the zone to obtain a tax break, avoid currency regulations, and access to other services at a lower price.
Bitfury also praised Georgia’s role in using blockchain technology in state registers. Georgia was the first country to use blockchain technology in its state land cadastre in 2017. The government used blockchain technology to issue education certificates at the start of 2019.
Many Georgians were inspired by Bitfury’s success and began to invest in powerful GPU cards to start their own mining farms. According to the World Bank report in 2018, cryptocurrency mining was carried out in Georgia by around 200,000 people.
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The circulation of digital currency was not influenced by the Georgian government until recently. Representatives of the national bank have repeatedly stated that cryptocurrencies are illegal and should be avoided.
The country’s economic success was so great that the Ministry of Finance of Georgia decided to clarify taxation of cryptocurrency.
Georgians are exempted from income taxes on profits from the sale or exchange of cryptocurrency. However, the 18% value-added tax (VAT) is not applicable to the sale or exchange of cryptocurrencies.
Additionally, computing power sold from Georgia overseas is exempted from VAT. However, computing power sold within Georgia is.
Corporate income, unlike individuals, is subject to tax on profits earned from any source around the globe. A Georgian company that receives crypto transaction income will be subject to a 15% tax. However, a company that doesn’t fix profits or pay dividends, and instead directs any income it receives to its development is exempted from corporate income tax.
Tbilisi Free Zone: Land plots Source: Tbilisi Free Zone
If the hash is obtained from Georgia, it will be subject to 10% income tax.
There is currently no regulatory framework in place for cryptocurrency in the country, other than taxes.
A cryptocurrency license can also be obtained by any business in the FEZ. It takes just five to ten days to obtain the license. The license is issued as a joint stock company or limited liability company. The founders can be from any country. The license grants the ability to enroll funds, write off money, and make digital money. You can also send payments or transfer money using this money.
Some Georgian authorities are now focusing on the cryptocurrency market. Natalia Ivanidze is the manager of the National Bank’s financial innovation office. She told Cointelegraph that regulators will be more active on this topic.
“Currently, trading virtual currencies is not an area of supervision for the National Bank of Georgia according to the Organic Law of Georgia on National Bank of Georgia. We would like to inform that this area will be regulated in the near future.
In 2021, the National Bank of Georgia stated that it was looking into a central bank digital currency (CBDC), called the digital lari. The pilot program could be launched this year. The digital lari, as is typical with bank-issued digital currencies would not be a cryptocurrency. It would instead evolve from cash. It cannot be mined and the National Bank would be its sole issuer.
The initial phase of the digital lari will be used for retail sales. National Bank believes national digital currency will increase efficiency in the payment system as well as financial integration.
Related: The race to find semiconductors: Are crypto miners winning the lion’s-share?
Future of miners
Every business is complicated, and crypto mining in Georgia is no different. Many questions were raised after the establishment of mining farms in the Free Economic Zone (Tbilisi) and about the status of the zone.
Many residents feel that crypto enthusiasts and miners don’t bring any benefits to the country, and they enjoy the tax advantages offered by the FEZ.
Unregulated production of digital currency and uncontrolled electricity use lead to frequent power outages in certain areas of Georgia, much to citizens’ dismay.
The Svaneti region suffers more than others. In an effort to support remote and rural communities and villages, the entire region is exempt from electricity payments. It is therefore not surprising that almost 1,000 miners appeared quickly in the region. The powerful computers used almost all the electricity available, which caused the loss of light to homes, schools, and hospitals.
These cases aren’t uncommon in Georgia. However, it doesn’t stop miners from engaging in this type of activity. Many Georgians consider cryptocurrency mining to be a passive source of income. Mining rigs can be installed in basements, garages and hangers, or even in apartments.
The obvious advantages of cheap electricity and mining in Georgia made it attractive. But, the question remains as to how long.