Georgia crypto mining’s potential: What’s driving growth in the industry?

A combination of laissez-faire factors has created a beneficial environment for cryptocurrency mining in Georgia.

Who would have thought that a small country in the Caucasus Mountains could become one of the world’s leaders in cryptocurrency mining?

Despite its small size and population, Georgia has become a popular spot for cryptocurrency mining thanks to its cheap electricity, the absence of legislative restrictions and attractive tax incentives. This combination of factors has engaged not only Georgian citizens but also foreigners who want to try their hand at cryptocurrency mining.

Oasis for miners

Georgia’s economy is actively developing, but it has not yet grown up to 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 Tbilisi, the capital of the country.

This action turned out to be a boon for the cryptocurrency business. By 2018, the country ranked second in the profitability of Bitcoin (BTC) mining.

The low cost of electricity attracted foreign investors to the country, namely the Dutch company Bitfury, an industrial miner and one of the largest in the world. In June 2014, it opened its first data center with a capacity of 20 MW in Gori. In December of the following year, Bitfury launched a more powerful (40 MW) data center in the Gldani district of Tbilisi. Thus, the company increased its capacity in Georgia to 60 MW.

*The citadel in Gori. Source: Petrshvili*

The mining company became the administrator of the Free Industrial Zone in Tbilisi, where 18 hectares of land were allocated for just $1. In addition to cheap electricity, Bitfury registered the company in the zone in order to get a tax break, avoid currency regulations and get access to cheaper utilities and other services.

Bitfury also noted its role in applying blockchain technology in state registries. In 2017, Georgia became the first country in the world to start using blockchain in the state land cadastre. At the beginning of 2019, the government decided to use blockchain technology to issue education certificates.

The success of Bitfury turned the heads of many Georgians, who actively began to acquire powerful GPU cards and create their own small mining farms. According to the World Bank report, about 200,000 people were engaged in cryptocurrency mining in Georgia in 2018.

Crypto legislation

Until recently, Georgian state authorities didn’t influence the circulation of digital money in any way. Several times, representatives of the national bank of the country have stated that it is necessary to be careful with cryptocurrencies, as they are not legal tender.

By 2019, the great influence of this sphere on the country’s economy led the Ministry of Finance of Georgia to clarify the taxation of cryptocurrencies.

Individuals in Georgia are exempt from income tax on any profits received from the sale of cryptocurrencies, while the sale of cryptocurrencies or its exchange for lari (the national currency) or another currency is not subject to value-added tax (VAT), which is 18%.

Furthermore, the sale of computing power from Georgia abroad is not subject to VAT, while the sale of computing power within the territory of Georgia is.

Unlike individuals, corporate income is taxed on corporate profits derived from sources around the world. As a result, if a Georgian company receives income from crypto transactions, it will have to pay a 15% tax on the transaction. But, if a company doesn’t fix profits and doesn’t pay dividends and directs all the income received to its development, then it is exempt from paying corporate income tax.