A few weeks ago we highlighted the fact that the government of Kazakhstan had decided to eliminate the tax breaks they were offering to bitcoin miners in reaction to the influx of miners escaping China. As more miners began to fill up rack space at hosting facilities and, therefore, an increasingly significant amount of electricity capacity tasked with serving the local communities, the target on the back of the mining industry in Kazakhstan grew. Once the target of hash reached a certain size, the government felt comfortable enough to levy a tax that would decrease profitability materially for miners.

Miners stuck in warehouses with the inability and necessary electrical infrastructure to move their operations to new sources of electricity in quick order can be caught holding the bag due to the need to stop hashing because of artificial pricing that drives an operation's costs too high or overt prevention of bitcoin mining via the state. This is a risk that must be taken seriously and planned for in the long run. The lowest-hanging fruit of mitigation for on-grid "warehouse" miners is to make their operations as modular and mobile as possible. If an individual miner can pack up, move out, and plug in at a new facility (whether it be off-grid or on-grid) with relative ease, they have more leverage with their electricity provider. Put another way, if a miner adds the ability to easily relocate an operation with minimal hashing disruption, it increases the opportunity cost for the electricity providers by reducing the leverage they have in negotiations. It's much harder to attempt to call an individual miner's bluff if they have modular and portable mining containers. This is because an individual miner who has a modular and portable setup is less likely to bluff.

At the end of the day, if these discriminatory practices from governments that single out Bitcoin miners continue, it is going to force more hash off-grid to avoid the political risk. The snippet above provides a significant data point that reinforces a point that many have been repeating for years, particularly those familiar with the mining scene in Venezuela; mining on-grid makes identifying individual mining operations very trivial. Many Venezuelan miners learned this the hard way when they had their equipment confiscated as a result of the utilities provider helping the Maduro regime identify mining operations via grid footprints. On-grid mining has its perks (uptime, centralization of maintenance activities, looser rack designs, etc.), but it certainly has a significantly higher political risk than off-grid operations.

That's not to say that off-grid operations don't have political and operational risks themselves. However, it is an acknowledgment - based in objective reality, I would argue - that there is a spectrum of political risks in the mining industry and off-grid mining lands to the right of on-grid if we're gauging everything from "completely beholden to the state" to "completely sovereign". This is because off-grid miners if vertically integrated, have cut out middlemen and a massive amount of competition in the process. If a miner owns the fuel source, the electricity generation, the miners, and cannot deliver their fuel source to civilization they have successfully eliminated a big chunk of their competition - the Average Joe on-grid electricity consumer. This reduces the amount of control third parties have over an operation and the potential political friction that could arise if Bitcoin miners are leveraging an unstable grid that goes down every once in a while.

Off-grid miners bear the risk of being shut down due to a successful ESG movement that bans the production and delivery of fossil fuels, or an overbearing government using infrared radar technology to identify mining containers and shut them down in the wild. While these risks exist, the amount of overall risk taken by off-grind miners when compared to on-grid mining ops is significantly lower. They are much more nimble and have stronger negotiation leverage. These are your Crazy Uncle Marty's buzzed thoughts at least.

Let me know what you think.

Final thought...

Late night back porch writing with some qual cab ain't a bad time.