BANGKOK — The impoverished nation of Laos, fueled by abundant hydroelectric power from the Mekong River, is shrugging off U.S. warnings of disastrous environmental problems and stepping in after China‘s crackdown on Bitcoin mining and trading.
Prime Minister Phankham Viphavanh announced last month that Laos would create and deal in Bitcoin, Ethereum and other blockchain-based currencies, making Laos the only Southeast Asian country to officially permit and participate in the web-based currency.
Bitcoin miners need plentiful power supplies to perform the dense mathematical computations that produce the currency. China allowed them to feed on its cheap electricity for several years, mainly in the provinces of Inner Mongolia, Xinjiang, Sichuan and Yunnan.
Beijing rocked the cryptocurrency markets in May by tightening regulations and shutting their systems. On Sept. 24, China’s central bank declared all transactions involving Bitcoin and other virtual currencies illegal. The Associated Press reported that Chinese officials were concerned that Bitcoin and other digital currencies disrupted the financial system and had become increasingly popular with money laundering rings.
Worried foreign investors struggled to export expensive, delicate, massive computers out of China while scouring the world for other places to set up. In its scramble to capture the Chinese business, Laos is taking on some big rivals.
“China has shot itself in the foot by going after its Bitcoin miners,” Forbes reported. “The U.S. is becoming a big-time miner in its wake.” Mining is allowed in Texas, South Dakota, Nebraska, North Carolina and other states.
International miners have also moved operations from China to Canada, Kazakhstan, Uzbekistan, Russia and elsewhere.
Mining, or “minting,” fresh crypto involves constructing and operating huge linked computer “rigs” to determine a 64-digit hexadecimal “hash” number based on increasingly complex algorithms, essentially guessing trillions of possible random answers. By doing so, miners confirm Bitcoin and transactions are genuine and add them to the blockchain.
Decentralized miners collect a commission in Bitcoin after validating 1 megabyte of transaction data.
The result, cryptocurrency advocates say, is a new kind of money that moves safely, seamlessly and anonymously over the internet beyond the control and regulations of governments and central banks.
Hot weather, cheap power
In the global competition to attract miners, several countries in the Northern Hemisphere boast of year-round icy temperatures to cool giant, heat-generating databases.
That’s not a pitch Laos can make. Its mountainous jungles are usually hot, but ultra-cheap Laotian hydroelectricity is proving a potent lure.
With 73 hydroelectric plants in operation, Laos‘ main export is electricity. Electrical power represented 30% of the country’s total exports, valued at $6 billion last year.
Laos also offers inexpensive real estate, a low-cost workforce, loose regulatory enforcement and special economic zones with financial sweeteners for outside investors. On the negative side, an opaque bureaucracy, limited transportation routes, corruption and an inefficient legal system could dampen enthusiasm.
For Laos to turn a profit, foreign cryptocurrency businesses would need to build, operate, repair, clean and test crypto databases inside large warehouses linked to hydroelectric stations.
The Laotian ministers of finance, energy and mines, planning and investment, technology and communications, and public security say they are ready to help.
Local investors for mining and trading include Wap Data Technology Laos, Phongsubthavy Road & Bridge Construction Co., Sisaket Construction Co. Ltd., Boupha Road-Bridge Design Survey Co. Ltd., the Joint Development Bank and the Phousy Group, according to the government-approved Laotian Times.
The government’s Bank of Laos will issue regulations for cryptocurrency use, even as the country relies on U.S. aid, Chinese loans, Thai investment and other foreign sources to fuel its economy.
El Salvador last month became the first country to embrace cryptocurrency as official legal tender.
In Laos, it is against the law to buy or sell cryptocurrency. Still, many Laotian businesses quietly accept cryptocurrency as payment and advertise opportunities to invest in digital currency, The Laotian Times reported.
Despite presenting itself as a hammer-and-sickle communist country, Laos has welcomed international capitalists from East and West seeking to exploit its natural resources.
Laos anticipates that crypto miners will harness the Mekong River and its tributaries for fast cash, but U.S. concerns focus on the proliferation of hydroelectric dams and its environmental impacts.
The Mekong begins in Tibet’s glaciers, crosses China and meanders from the northern Laotian border into Cambodia. The river then broadens into southern Vietnam’s Mekong Delta and washes into the South China Sea near Ho Chi Minh City.
The U.S. has backed Cambodian and Vietnamese efforts to curb Laotian dam construction and enforce regulations on the seasonal timing and quantity of water that flows to maintain the two downriver nations’ fishery and agricultural sectors.
Critics say the dams create some of the worst environmental crises in Southeast Asia and are concerned that Beijing has joined other investors to rush construction and extract quick profits.
Most Laotian hydroelectric power is sold to the government-owned Electricity Generating Authority of Thailand, which lights up Bangkok, Chiang Mai and other cities. Laos needs just a small share of the electricity it generates because of the modest needs of its scattered population of 7 million.
Chinese companies built many of the dams, and Thais and others built and financed several. A total of 140 dams are ultimately expected to be constructed in Laos.