Ethiopia aims to be the future African Eldorado of cryptocurrencies

Half of its population does not have access to electricity and the law still prohibits the use of cryptocurrencies, but Ethiopia could nevertheless become the future stronghold of bitcoin mining in Africa and a major player in the world.

In 2022, the Ethiopian government legalized cryptocurrency mining – the process of solving increasingly complex equations using computers to validate transactions in electronic currencies, including bitcoins. Two years later, around twenty companies set up their mining containers and supercomputers on the outskirts of the capital.

In February, Addis Ababa signed electricity supply agreements with twenty-one companies, including nineteen Chinese, so that they could be connected to the Ethiopian network. A boon for these bitcoin farms, which are desperately seeking new markets after being banned in China in 2021, then pushed out in other countries – notably in Kazakhstan and Iceland – due to the energy crisis that these huge electricity consumers have worsened. Global bitcoin mining uses more energy in a year (121 terawatt hours) than a country like Argentina.

The completion of the Great Renaissance Dam

“The race to access sufficient electrical energy is intensifying around the world, explains Batyr Hydyrov, president of Uminers, which plans to install 24,000 machines in the Ethiopian capital by the fall. The overall slowdown in mining is due to the scarcity of installation sites and limited power capacity. » On these two points, Ethiopia has what it takes to establish itself as a future El Dorado for bitcoin miners.

After years of diplomatic battle with Sudan and Egypt, Ethiopia is on the verge of completing its Grand Renaissance Dam on the Nile, the largest in Africa (5,300 megawatts), which alone should double its electricity production. The Ethiopian authorities intend to use this surplus of green energy to power huge mining farms.

The latter are presented in Ethiopia as the tool which could, in the long term, become the main provider of foreign currencies ahead of coffee and gold. The country has been experiencing a serious economic crisis since the Tigray civil war (2020-2022). Since its exclusion from the American trade agreement AGOA (“African Growth and Opportunity Act”) in January 2022, Ethiopia has faced the flight of foreign companies to its soil and a shortage of foreign currency.

“The government is killing two birds with one stone, specifies Dawit Mengistu, the founder of the Ethiopian Blockchain network. At the same time, the purchase of licenses and electricity brings in dollars and, at the same time, we sell the energy that we do not use. » The Luxor Technologie firm estimates that Ethiopia has some 3,000 megawatts of surplus electricity.

An obsolete electricity network

“This is enough for miners to monetize it, which will then allow other infrastructure to be developed”, says Alessandro Cecere, one of the firm’s researchers. In addition to being plentiful, Ethiopian electricity is cheap – about a third cheaper than in Texas, the global stronghold of bitcoin mining.

“Ethiopia’s power generation potential is unlimited, but distribution is terrible”, however, recognizes Kal Kassa, a cryptocurrency entrepreneur based in Addis Ababa, where cuts are recurrent. At the end of March, an outage plunged the country into darkness for four hours.

Ethiopia loses up to 23% of its electricity due to “capacity of transport networks or their obsolescence, the reliability and quality of often aging distribution networks”, according to a note from the general direction of the French Treasury. To modernize the network, the World Bank granted Ethiopia a $523 million loan in April.

Moreover, Ethiopia benefits from a geographical advantage. Mining tools, which emit large amounts of heat, require a constant supply of electricity to cool them.

“Addis Ababa is located above 2,000 meters above sea level and temperatures quickly drop below 20 degrees. So you save a lot of money because the computers cool almost on their own”, estimates Kal Kassa, who considers that the activity could bring in nearly 2 billion dollars each year to Ethiopia. According to him, the country has the capacity to host 5% of global mining activities within two years.

Unbeatable energy prices

Currently, almost all of the companies that have obtained a license are headquartered in China. “It is obvious that there was a political agreement with the Chinese”confides, on condition of anonymity, a European investor who deployed his machines in Ethiopia under the license of a Chinese mining farm. “It is the meeting between the interest of the Ethiopian government to store dollars and the interest of Chinese companies to find a new base and low-cost energy”he summarizes.

Addis Ababa and Beijing have enjoyed close economic relations for decades. China holds three-quarters of Ethiopia’s bilateral debt after investing massively in the country’s infrastructure, notably the railway line linking Addis Ababa to Djibouti or in transmission lines linking the great Renaissance Dam on the Nile with the rest of the territory.

For Ethiopia, cryptocurrency mining, an extremely energy-intensive activity, is a risky bet because it could jeopardize its energy security, as was the case in Kazakhstan and Iceland, where the networks were regularly saturated by mining farms. bitcoins. It is up to Addis Ababa to decide whether revenues from mining will be allocated to the goals of connecting millions of Ethiopians to electricity. Today, Ethiopia “experiences the third largest energy access gap in sub-Saharan Africa, with around half of the population still lacking access to reliable electricity”according to the World Bank.

As for bitcoin companies, if they say they are attracted by uncompetitive energy prices, they will closely follow local regulations. For the moment, only one social tax (3%) is imposed on minors. But the Ethiopian government is preparing to increase taxes. Africa’s second most populous country also poses a political risk. Less than two years after the end of the Tigray war, almost half of Ethiopian territory remains inaccessible, plagued by insurgencies and instability.