The tiny Himalayan country of Bhutan, which in 1999 became one of the very last in the world to allow internet access, is now making what is perhaps Asia’s boldest foray into the risky world of cryptocurrency.
For decades, Bhutan’s development was limited by physical geography — almost 99 per cent of its territory is covered by mountains and hills. But since the 1970s, the isolated kingdom has used its geography to its advantage by constructing numerous hydroelectric power plants along its glacial rivers, giving it enough electricity for its own use and for export.
Now, Bhutan plans to use its cheap, abundant power to mine Bitcoin — an extremely energy-intensive process requiring special computers and technology to solve complicated mathematical problems — and invest the profits in the country’s development.
Bhutan’s sovereign wealth fund, Druk Holding and Investments (DHI), last week announced a $500 million partnership with a Singapore tech company, Bitdeer, to mine Bitcoin in the country for sale abroad.
"The partnership with Bitdeer to launch a carbon-free digital asset mining datacentre represents an investment in a more connected and sustainable domestic economy, helping ensure we are at the forefront of global innovation,” DHI chief executive Ujjwal Deep Dahal said.
Bhutan is not known as a tech-savvy nation. While internet coverage is now at 85 per cent of the country's 795,000 citizens, its tech industry is nascent, according to Tshering Cigay Dorji, the former chief executive of Thimphu Tech Park, the country’s only major IT hub, which hosts about 600 workers and a handful of companies servicing international clients.
More than half of Bhutan’s population still work in agriculture and the country is one of nine Asian countries categorised by the United Nations as a Least Developed Country.
“The problem is that while Bhutan has this very romantic, Shangri-la type image in the west, the ground reality is that we are still one of the least developed countries and economic self-sufficiency has always been our ultimate aim,” said Tenzing Lamsang, the editor of The Bhutanese, the country’s largest private newspaper.
Under Bhutan's Wangchuk dynasty, the country's focus has been on boosting Gross Domestic Happiness rather than financial gain. But the royal family's decision to increasingly cede power to elected officials in recent years has led to better policy decisions regarding the economy.
The abundant power from hydroelectric plants was used to drive new domestic industry, including forestry and mining, as well as being exported to neighbouring India.
The poverty rate declined from 36 per cent in 2007 to 9 per cent in 2019, according to the World Bank.
“We don’t have much land for large-scale industry and we can’t compete with China and India when it comes to services. But, what we do have is extensive hydropower – the cheapest in the world,” Lamsang said.
“Bitcoin is part of a fourth economic industrial revolution in Bhutan. Cryptocurrency is a low-hanging fruit for us and we can use the proceeds to get into AI, robotics and machine learning.”
News of the state's Bitcoin venture has been greeted with a mixture of excitement and suspicion in Bhutan, given the unfamiliarity with the concept of cryptocurrency and the fact that $500 million is a huge investment for an economy the size of Bhutan’s size – the International Monetary Fund puts GDP at $2.6 billion, which ranks the country 178th in the world.
Last year, there was also public anger after it emerged the DHI had secretly borrowed millions of dollars from cryptocurrency lenders BlockFi and Celsius, with the news coming out only after both companies went bankrupt.
The press statement from DHI and Bitdeer said the money would be used to construct data centres for mining and to acquire necessary technology, as well as for investment in renewable energy sources.
The National approached DHI, Bitdeer and the Bhutanese Finance Ministry for comment but did not receive a response
Cryptocurrency experts say that the deal will be lucrative for Bhutan and will lead to further opportunities in financial services.
“I see it as a smart strategy. It’s better for Bhutan to sell Bitcoin, a finished product, rather than energy as a raw material, because it will fetch the country much higher returns. Exporting raw power to neighbouring countries can involve significant infrastructure costs,” said Nischal Shetty, the co-founder and chief executive of WazirX, one of India’s largest cryptocurrency trading platforms.
“Bringing in Bitcoin mining will also allow Bhutan to tap into new markets globally and allow the country to begin to develop more and more financial technology.”
The major concern, however, comes from fluctuation in the price and demand for cryptocurrency. In 2018, the price of cryptocurrencies collapsed by more than 80 per cent between January and December.
Bitcoin reached an all-time high of $65,000 in 2021 but plummeted to $6,200 after the start of the war in Ukraine in February last year. It has recovered to about $27,000 since then.
JPMorgan, the American financial services company, estimates it costs $13,000 to mine one Bitcoin, a process that can take anywhere between an hour and several months, depending on user experience and available software.
Bitcoin’s advocates say it is the currency of the future. It offers user anonymity and transparency and avoids third-party involvement, such as from a government, while cross-border transfers are cheaper.
Still, uptake is slow. According to a 2021 World Economic Forum study, only 6 per cent of American citizens owned cryptocurrency and the rate was even lower in Japan, Germany and Russia.
At least 42 countries have outright bans or de facto limits in place, including China, Saudi Arabia and Indonesia. India has proposed an outright ban.
There are also concerns over the long-term viability of cryptocurrency. Already, the energy used to mine Bitcoin annually is greater than the amount Norway uses in one year.
“At the end of the day, volatility will always exist with any currency,” Mr Shetty said. “And, Bitcoin and other cryptocurrencies are far more volatile – it’s hard to say how they will behave in the future.”
