China has long been a massive player in global cryptocurrency markets. Bitcoin miners have been drawn to cheap electricity prices, which they use to power the huge computers they need to produce more bitcoin. In fact, it's estimated that 70 percent of the world's cryptocurrency supply comes from Chinese digital mines.
At least that was the case until March, when the province of Inner Mongolia banned bitcoin mining. This week Chinese Vice Premier Liu He put the nail in the coffin with a new crackdown on cryptocurrency mining. State media cited the role of bitcoin in illegal activities and crypto’s huge energy demands as reasons for the decision.
The price of bitcoin has since plummeted and a major exodus of crypto miners is getting underway.
Interestingly, there is now talk of a major opportunity for Mongolia. Could it become a new home for cryptocurrency producers fleeing China?
Plans are already underway
Bat-Orgil Turbold – a former business executive of a multinational company and currently the Dacheng Dentons Mongolia Law Firm Senior Counsel – spotted this opportunity a while ago. He is coordinating a group of companies that want to build a server farm, complete with its own power plant, in Sukhbaatar aimag -
a far eastern province sharing a border with Xilingol, Inner Mongolia, China.
"Mongolia is perfect for developing server farms," Bat-Orgil said to Mongolia Weekly. "Data is growing exponentially and its storage and management is becoming critical. And Mongolia can offer that service."
The reason, he explains, is the climate in south-east Mongolia. The ambient humidity rarely dips below 30 percent or above 70 percent, which is perfect for server farms – below 30 increases the risk of static charges and above 70 causes condensation in critical equipment.
"Almost eight months of the year in Mongolia is considered to be the cold season," he adds. "Server farms elsewhere use around 30-40 percent of their electricity supply just to cool themselves down. So Mongolia has the perfect climate."
But there's an obstacle – an unreliable electricity supply and a lack of renewable energy infrastructure.
"We don't have much sustainable electrical power in Mongolia," Bat-Orgil said. "And demand is cyclical in nature – consumption increases in the winter and between certain hours every evening."
To get around the issues in the Mongolian grid, Bat-Orgil and the team he is coordinating (called Maverick Civic Initiative) want to build a whole new coal-fired power plant to power a server farm and put Mongolia on the digital map.
"This could be a new economic engine for Mongolia," he said. "We're planning to build a 1.2 gigawatt power plant next to a big crypto farm."
While Bat-Orgil can't go into specifics on who is involved in Civic Initiative (citing commercial sensitivities), he says one company that's involved already owns a power plant in China and has bought equipment to build the new plant in Sukhbaatar aimag.
"We're waiting for the border to open to bring in the equipment," he said. "Then it will take a year to build the facilities and install it."
When asked whether businesses will be dissuaded from investing in a new coal-fired power station given the global shift to green energy, Bat-Orgil acknowledges the trend and confirms that the renewable energy plants will be built as a second tier..
"I understand the world is moving to renewables, but currently, the cost of renewable energy is prohibitively high for Mongolia to start the project with. Coal is the main commodity available to us right now," he explained. "Although the initial phase of course is coal power, there is another group working on renewable energy and other technologies, like fuel cells."
"Given today’s rate of scientific discoveries and advancements surely new and most importantly affordable technologies will be available soon. On the other hand, coal plant technologies are becoming greener as well," he said. "We aren't going to stop at 1.2 gigawatts but will increase it exponentially over time."
Beyond crypto mining
These plans are extremely ambitious. Crypto mining is a competitive business and other regions, particularly North America, are already attracting interest from Chinese miners looking for a new home.
But Civic Initiative's ambitions don't stop with crypto. The consortium reportedly wants to use the power plant-server farm to kick-start a whole economic 'enclave' in Sukhbaatar aimag; essentially a brand new digital city on the steppe, hosting data from giants like Google and Amazon.
"These companies are having political problems in China," Bat-Orgil said. "And who can predict what will happen in Russia? Coming to Mongolia is a win-win for them and us."
Bat-Orgil even talks about plans to eventually build a 'smart city' for the thousands of people he believes will be employed in this enclave, including a hospital, educational and research facilities, accommodation and more.
"We're already in the process of negotiating with Japanese universities to establish a relationship," he said. "There will also be a focus on agriculture and tourism. As we develop, we'll aim for an organic food supply chain and we're working with some companies on that, including one based in the UAE."
Where will the money come from?
According to Bat-Orgil, there is 'plenty of money' in the world at the moment but Mongolia's political instability is an issue for attracting investment into this mega-project.
"One goal of this initiative is to establish an environment that provides the stability investors need," he said.
To do this, Bat-Orgil outlines two strategies; run the place autonomously from the government, and set up an employee-owned company to attract international interest.
Independence, he says, will be achieved in a similar way to the Oyu Tolgoi mine or International School of Ulaanbaatar – having stricter and more comprehensive rules and by-laws that are in compliance with national legislation, but are geared towards global best practices and international private and customary laws, given the majority of targeted investors are foreign.
The city will be structured not as an administrative unit, he says, but as a territory of a holding company that consists of numerous operating, employee-owned companies that run different types of businesses.
According to Bat-Orgil, this will allow much broader freedom and independence from political interference into commercial affairs and governance issues; which, he argues, rests on the basis that national legislation also doesn’t prohibit use of another country’s commercial laws between contracting parties.
Controversial? Perhaps.
"Legally the government can't interfere with the company’s internal affairs, unless we break the law," Bat-Orgil said. "We'll pay taxes, but business operations won't involve government interference. It's a legal framework for investors that is clear, stable and transparent."
Employee ownership in the company is the second half of this investment plan.
"We're offering a concession build-operate-transfer (BOT) model for investors," he explained. "Once the initial investment is completely or partially (that is being elaborated by the economic and business development working group ) recuperated, up to 49 percent ownership will be gradually transferred over a period of time to employees. This is one of the legal issues we're working on – how to make this internationally appealing."
Bat-Orgil says they're hoping to have international grants coming in April 2022, and if all goes well, to start building the plant not long afterwards. He says initial operations will hopefully begin in 2023.
"It's 'democracy 2.0'," he said. "This is unique. Nobody has tried this before."
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