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The Potential of Crypto Mining in Georgia: What's Driving the Industry's Growth?

The Potential of Crypto Mining in Georgia: What's Driving the Industry's Growth?
 
    Who would have thought that a small country in the Caucasus Mountains could become one of the leaders in global cryptocurrency mining?
 
    Despite its small size and population, Georgia has become a popular location for cryptocurrency mining due to its cheap electricity, no legislative restrictions and attractive tax incentives. This combination of factors attracts not only Georgian citizens but also foreigners who want to try cryptocurrency mining.
 
 
    Miners Oasis
 
    The Georgian economy is actively developing, but it has not reached the level of other developed countries. In 2015, in order to attract foreign investment and boost the economy, Georgian authorities established a Free Economic Zone (FEZ) in the country's capital, Tbilisi.
 
    The move has proven to be a boon for cryptocurrency businesses. By 2018, the country ranked second in terms of Bitcoin (BTC) mining profitability.
 
    The low cost of electricity has attracted foreign investors into the country, namely Dutch company Bitfury, an industrial mining company and one of the largest mining companies in the world. In June 2014, it opened its first 20 MW data center in Gori. The following December, Bitfury launched a more powerful (40 MW) data center in the Gldani district of Tbilisi. As a result, the company increased its capacity in Georgia to 60 MW.
 
    The mining company became the administrator of the Tbilisi Free Industrial Zone, and 18 hectares of land were allocated for just $1. In addition to cheap electricity, Bitfury has registered companies in the region in order to receive tax breaks, avoid currency regulation and access cheaper utilities and other services.
 
    Bitfury also pointed to its role in applying blockchain technology to state registries. In 2017, Georgia became the first country in the world to start using blockchain in state land cadastres. In early 2019, the government decided to use blockchain technology to issue educational certificates.
 
    The success of Bitfury caught the attention of many Georgians who actively started buying powerful GPU cards and creating their own small mining farms. According to a World Bank report, about 200,000 people were engaged in cryptocurrency mining in Georgia in 2018.
 
    Related: Global Mining: Where Should Crypto Miners Go in a Changing Environment?
 
    encryption legislation
 
    Until recently, the Georgian state authorities had not affected the circulation of digital currencies in any way. Representatives of the country’s national bank have repeatedly said that cryptocurrencies need to be used with caution, as they are not legal tender.
 
    By 2019, the huge impact of this area on the country’s economy led to the Georgian Ministry of Finance clarifying the taxation of cryptocurrencies.
 
    Individuals in Georgia are exempt from income tax on any profits made from the sale of cryptocurrencies, while the sale of cryptocurrencies or their exchange for lari (the national currency) or other currencies is not subject to Value Added Tax (VAT), which is 18%.
 
In addition, Georgia is not subject to VAT on sales of computing power abroad, while sales of computing power within Georgia are subject to VAT.
 
    Unlike individuals, corporate income is taxed on corporate profits from around the world. Therefore, if a Georgian company receives income from a crypto transaction, it must pay a 15% tax on that transaction. However, if a company does not fix profits, pays no dividends, and uses all the income it receives for its development, it is exempt from corporate income tax.
 
    In addition to VAT, income from the purchase or sale of hash to non-residents is subject to 10% income tax if it is derived from Georgian sources.
 
    Apart from taxation, the country currently does not have a clear regulatory framework for cryptocurrencies.
 
    Furthermore, any business can obtain a cryptocurrency license at FEZ. Licenses can be obtained in just 5-10 days and are issued in the form of a limited liability company or a joint stock company, and the founder can be a resident of any country. In particular, the license grants the right to cancel and register funds in accounts, to produce digital currencies, and to use these currencies for payments and transfers.
 
    Nonetheless, some Georgian authorities have turned their attention to the cryptocurrency market. Natalia Ivanidze, manager of the National Bank’s Financial Innovation Office, told Cointelegraph that regulators will be more active in this area:
 
    “Currently, according to the Organic Law of the National Bank of Georgia, trading virtual currencies does not fall under the supervision of the National Bank of Georgia. However, we would like to inform you that this is planned in early 2021, the National Bank of Georgia announced that it is considering a digital Larry's Central Bank Digital Currency (CBDC), a pilot program to be launched this year. As a feature of bank-issued digital currency, digital Larry will not be a cryptocurrency, but just an evolution of cash. It cannot be mined, the only The issuer will be National Bank.
 
    In the initial stage, it is planned to introduce digital lari for retail. The National Bank believes that a national digital currency will help improve the efficiency of payment systems and financial integration.
 
    The future of miners
 
    Any business has its complexities, and crypto mining in Georgia is no exception. After the mine opened its shop in the Tbilisi Free Economic Zone, several problems arose related to the state of the business and the economic zone itself.
 
    Some residents of the country believe that crypto miners and enthusiasts do nothing for the country and enjoy the tax benefits offered by free economic zones.
 
    The unregulated production of digital currency and the uncontrolled use of electricity have resulted in frequent blackouts in some parts of Georgia, much to the dismay of the country’s citizens.
 
    The Svaneti region suffered more than other regions. The area is completely exempt from electricity bills to support more rural and remote towns and villages. So it's no surprise that nearly a thousand miners quickly popped up there. Their powerful computers began to use nearly all the electricity in the area, which led to outages in lighting in homes, hospitals and schools.
 
    This is not uncommon in Georgia, but it has not deterred miners as regulators have not explicitly banned this area of ​​activity. Additionally, for many Georgians, cryptocurrency mining is a relatively passive form of supplemental income, as mining rigs can be set up in basements, garages, hangers, and apartments.
 
    Georgia's mining industry was and remains attractive due to obvious advantages such as cheap electricity, but the question remains how long this will last.

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