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The kingdom of Bhutan has been quietly mining Bitcoin for years

July 16, 2023

The Himalayan kingdom confirmed it has quietly been running a bitcoin mining operation as mystery surrounds the scale of its earlier cryptocurrency investments.

AFP via Getty Images

The Himalayan kingdom confirmed it has been running a bitcoin mining operation as mystery surrounds the scale of its earlier cryptocurrency investments.

Beneath the Himalayas, rivers fed by ancient glaciers supply the tiny kingdom of Bhutan with immense stores of hydroelectricity. The renewable resource has become an economic engine, accounting for 30% of the country’s gross domestic product, and fueling the homes of nearly all of its 800,000 residents. But for the past few years, Bhutan’s royal government has been quietly devising a new use for these reserves: powering its very own bitcoin mine.

Sources familiar with Bhutan’s efforts to develop sovereign mining operations told Forbes that discussions have been occurring since 2020, though until this week its government had never disclosed its plans. Bhutan sought to harness the country’s hydroelectric plants to power racks of mining machines that solve complex mathematical problems in order to earn bitcoin rewards. Once completed, this would make Bhutan one of the only countries to run a state-owned mine, alongside El Salvador.

On Saturday, days after Forbes contacted Bhutanese officials with questions about the mining scheme, a government representative confirmed to local newspaper The Bhutanese that it had begun mining “a few years ago as one of the early entrants when the price of Bitcoin was around USD 5,000.” It explained that the earnings go towards subsidizing power and hardware costs.

Bhutan’s Ministry of Finance did not respond to a list of questions from Forbes about the scope of the enterprise. It’s unclear when mining began, where it’s located and whether the scheme has turned a profit. (As for the start date, bitcoin was valued at $5,000 in April 2019.) It’s also unclear why Bhutan never disclosed the project to its citizens or international partners.

Bhutan is also in negotiations with Nasdaq-listed mining company Bitdeer, which was founded by former Chinese billionaire Wu Jihan. This month, Bitdeer revealed to investors in a stock market update that it was in talks to secure access to 100 megawatts (MW) of power for a bitcoin mining datacenter in Bhutan, slated to break ground this quarter. The Singapore-based firm — one of the world’s largest bitcoin miners — listed on the Nasdaq earlier this month through a $1.1 billion merger with a blank check company. Neither Bitdeer nor Bhutanese officials responded to requests for comment on the deal.

“It’s concerning that Bhutan’s resources have been invested in a secretive manner.”

A partnership with the kingdom would increase Bitdeer’s mining capacity, which is second only to bankrupt Texas-based Core Scientific in scale, by about 12%, adding to its data centers in Washington, Texas and Norway. “We expect to generate 100 MW out of the 550 MW power supply from Bhutan, where the construction of mining datacenter is expected to begin in the second quarter of 2023 and complete in the third quarter of 2024,” Bitdeer said in a investor update on 19 April. The announcement didn’t specify who would ultimately own it.

Tucked between China, India and Nepal, Bhutan is perhaps best known for its emblematic “thunder dragon,” Buddhist monasteries and commitment to “gross national happiness” over domestic product. However, the isolated nation has spent several years cultivating a significant crypto portfolio as well. Forbes previously reported that Bhutan’s state-owned holding company, Druk Holding & Investments, covertly poured millions of dollars into cryptocurrency holdings, which were inadvertently exposed by the bankruptcies of lenders BlockFi and Celsius. While these investments were made through a sovereign entity created to manage the country’s wealth on behalf of its people, its citizens were never told.

Rumors of government-backed bitcoin farms spread across the country in recent years. One Bhutanese citizen told Forbes they believed there were “mostly experimental” projects under way; Druk staff listed their responsibilities on LinkedIn as operating and managing “crypto mining farmhouse” and Bitmain-made mining rigs.

The amount of chips Bhutan has imported also skyrocketed in recent years, according to customs data. Bhutan’s international supporters have cautiously observed its growing crypto appetite and voiced concern that the $193 million spent on computer chips has fueled a yawning trade deficit and tallied with a sharp drop in the country’s foreign currency reserves. “It’s concerning that Bhutan’s resources have been invested in a secretive manner in a highly volatile and risky investment which has a big environmental burden,” says one former international advisor, who asked not to be identified.

The Scale Of Bhutan’s Mining

Bhutan’s government appears to have considered working with other miners beyond Bitdeer. Insiders at rival services and pools, where miners share compute power to unlock new bitcoin blocks faster, said they have held advanced talks with senior government officials, including Druk, about the kingdom building and operating a hydro-powered operation. Consultants who advised the government on its mining strategy prior to Bitdeer’s announcement told Forbes that Bhutan had previously inquired about a 100 MW operation hooked into one of its hydroelectric plants.

This level of spending would equate to a data center the size of several football fields.

This pales in comparison to massive farms like Riot’s Rockdale facility in Texas, which boasts a 450 MW capacity. But the site would be on par with other large projects, such as Russia’s Bitriver mine and an operation negotiated by Pow.re in Itaipu, Paraguay, which draws electricity from one of the world’s largest dams.

Bhutan customs data hints at the scale of its mining operation. The landlocked country’s inbound trade is normally dominated by gasoline, steel and rice. But millions of dollars of “processing units” or computer chips surged to the top of its imports in 2021 and 2022, according to data published by Bhutan’s Ministry of Finance.

Last year, around $142 million worth of computer chips were imported into Bhutan, accounting for around a tenth of the kingdom’s total $1.4 billion of inbound trade, or around 15% of the government’s $930 million annual budget. The country also imported $51 million of chips in 2021. By comparison, Bhutan custom officials recorded just $1.1 million of these chips were imported in 2020. The cost of bitcoin mining rigs tracks the cryptocurrency’s value as it swings, but industry insiders say even at 2021’s sky-high prices, this level of spending would equate to a data center the size of several football fields.

The trade data classifies the chips under the same export label used by bitcoin mining rig makers, and shows they were largely sourced from China and Hong Kong. However, it doesn’t reveal who exported and imported them. Bhutan’s Ministry of Finance noted that the country’s total imports soared in 2022, partially due to spending on these chips by Druk Holdings & Investment “for special projects.” Bhutanese officials did not respond to questions about how the hardware was used.

The country has been open about its interest in the blockchain as an economic boon; in 2021, it piloted a “central bank digital currency” with the exchange Ripple. But its crypto investments have largely remained a secret, even when they involved entanglements with failed companies. Druk had previously told Forbes it was unable to comment on its exposure to BlockFi “due to confidentiality” reasons. Druk’s recent annual reports and balance sheets make no mention of its digital asset portfolio, or bitcoin mining operations.

Druk CEO Ujjwal Deep Dahal told local media it had borrowed from BlockFi and Celsius to support other investments, and revenues from its bitcoin mining operation meant it had not lost money on its digital asset investments.

Why Bhutan Got Into Crypto

Bitcoin mining has increasingly become an industrial operation, frequently relying on specialized chips from Chinese companies like Bitmain or Nasdaq-listed Canaan. These mining rigs are often bundled together into vast energy-hungry data centers.

China’s move to ban crypto activities in 2021, as well as moves in Kazakhstan and Sweden to limit or tax bitcoin miners, have forced many operations to find new homes with cheap sources of electricity. The United States, Norway and further flown destinations like Paraguay, which also has immense hydropower capacity, have drawn hoards of miners. Still, several of the largest mining operators like Core Scientific and Compute North filed for bankruptcy after bitcoin prices plunged and energy prices soared in the last year.

“It’s no surprise that entities are mining bitcoin in Bhutan. The mountainous country has a massive hydropower capacity compared to its small population and produces a similar amount of electricity per capita as the United States — a much wealthier country,” says Jaran Mellerud, bitcoin mining analyst with Luxor. “This cheap, stranded hydropower is undoubtedly alluring for miners whose sole job is turning undervalued electricity into bitcoin.”

Sources familiar with the matter told Forbes that the pandemic was a trigger for senior Bhutan officials to begin talks with bitcoin miners, and mining suppliers. Bhutan, which was closed to foreigners until 1974, again sealed its borders for almost two years to shelter its population of 800,000 from Covid-19. (The country famously staved off the virus for months until its first case was reported in an American tourist in January 2021, which prompted the lockdown.) The country has claimed only 21 Covid-19 deaths to date, but the pandemic devastated its tourism industry, which is core to its economy. Bhutan has championed several novel economic concepts in the past like its Gross National Happiness index, and high-end tourism, with well-heeled visitors being hit with visa fees of $200 per day.

The Singapore Bhutan Association, a club of Chinese, Singaporean businessmen and a member of Bhutan’s royal family, fronted one proposal to run bitcoin miners out of shipping containers, according to recent pitch documents reviewed by Forbes. The scheme promised royal support and cheap energy to investors willing to spend up to $800,000 on shipping containers kitted out with a 700 kilowatt mining rig.

“This cheap, stranded hydropower is undoubtedly alluring for miners whose sole job is turning undervalued electricity into bitcoin.”

Dasho Ugen Tsechup Dorji, uncle of Bhutan’s current king, said the project was currently on hold. The government “have not approved the private sector to get involved in this business,” Dorji told Forbes. Singapore Bhutan Association board member Humphery Chan said the collapse of FTX, and the logistical issues with transporting and operating mining rigs in the landlocked nation, had soured investor interest.

Analysts have also voiced concerns about Bhutan’s suitability for large-scale mining operations. While Bhutan exports roughly 75% of the electricity generated in its country to India annually, its rivers dwindle in the winter dry season and it actually imports energy back from its giant neighbor.

During those periods, miners stand to lose substantial amounts, according to Alex de Vries, an economics researcher at Vrije Universiteit Amsterdam and the author of Digiconomist. “If you shut down for extended periods of time you risk not even being able to recoup your investment. Not running means no income.”