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Power Landscapes: Blockchain technology and its circular crypto-economy possibilities in Transnistria

The views expressed are those of the authors and do not reflect the official position of CANactions School.
Keywords: Transnistria, decentralization, energy, agriculture, blockchain, cryptocurrencies, mining, circular energy, sustainability.

The natural landscape in Moldova and its breakaway state Transnistria hold a strategic position divided by Dnister river - one of the main power suppliers of the region. As in many Post-Soviet countries, national governments, direct foreign investments combined with independent activities are hosting the heart of the East crypto boom. From 2018 the new regulatory ''On the development of information blockchain technologies in the Pridnestrovian Moldavian Republic " (1) has transformed Transnistria into a free zone for blockchain and mining powered by the cheapest energy price in Europe.
This essay dives towards intrinsic contradictions and possibilities on the combination of natural, regulatory, socio-economic, and digital landscapes on this specific territory. Controversially, political and corporate centralization is taking place in Transnistria instead of the proposed crypto economy decentralized revolution. At the same time possibilities of the growing digital economy and specific geographical characteristics in Transnistria might carry a strong potential to decentralization, with sustainable and socially-integrated practices. To discuss these possibilities we analyze three layers: energy sources based on the bitcoin mining market, the Free Economic Zone for Blockchain Technology, and local agricultural production.

Crypto-economy and the decentralized digital revolution
In 2008, Satoshi Nakamoto published a white paper called ''Bitcoin: A Peer-to-Peer Electronic Cash System'' (2). Landmarking the birth of the pop cryptocurrency, other outputs came beside the coin itself. The allowance to transfer money digitally without a third party (Peer-to-Peer) came with the creation of what we know as the first blockchain (3). For validating transactions, network security, and creating new currencies, distributed participants (called miners) use computational energy through a Proof of Work (PoW) (4) consensus mechanism to compete for cryptographic puzzle solving. This puzzle consists in calculating the encrypted message through an unidirectional function that can't be duplicated nor modified, checking the imputed data with an expected value. Through digital executed mathematical functions it is possible to confirm data integrity of digital signatures. Using for example the Secure Hash Algorithm (Figure 1) that translates information into binary digits processed through computational power, which consumes energy and digital infrastructures.
Figure 1: SHA 256 is one of the main cryptographic functions used to process Bitcoin data
The efforts in finding the solution for the mentioned equations are rewarded with transaction fees and a fixed quantity of coins related to the creation of new blocks/coins in circulation through the consensus network (5). In Satoshi Nakamoto's words "the steady addition of constant of amount of new coins is analogous to gold miners expending resources to add gold to circulation" (4, 2018), relating to monetary theories that justify the value of gold depending on its rarity and difficulty to extraction, bitcoin is deflationary, requires energy power and efficient hardware to solve its puzzles.

The mining energy expenditure to validated blocks has also a purpose to secure Bitcoin from digital and concentration attacks (6). Mining is a significant profitable activity in which "the more computational power one has, the bigger the share of all distributed rewards that go to that miner" (Alex de Vries, 801, 2018). When Bitcoin was launched, mining puzzles could be solved with effective hardware infrastructures and Central Processing Unit (CPU) power. Now, this is a three-digit billionaire market with a global scale of energy expenditure that can be compared with the consumption of countries such as Switzerland, Greece, Israel, Ireland, and other 20 European nations (7). Another interesting comparison is that Bitcoin uses only four times what Christmas lights use and have the capacity to illuminate the entire banking system in the world. The questions stood cannot be simplified just in terms of energy consumption, but also in terms of the source and potential of that energy (see Chart 1 and Chart 2).

As high complexity mathematical equations, this process makes "Bitcoin extremely energy-hungry by design" and has electricity as "the primary fuel for each one of these calculations" (Alex de Vries, 2018, 801) besides the necessity of computational infrastructure. The energy consumption of this profitable activity is in debate regarding its sustainability.
Figure 2: Dashboard including Chart 1, 2, and 3.
Crypto mining landscapes: the physical backyard of the digital revolution
The crypto-economy happens in a digital sphere, but its operations are intrinsically dependent on physical infrastructure and territories with specific conditions. Mining farms are the facilities that concentrate machines for mining. Miners are free to move to areas with the most profitability which basically means access sources with surplus and cheaper energy. In this sense, Bitcoin mining presents an opportunity to improve the overall efficiency of electricity markets worldwide. And, as miners need high-quality internet and an efficient telecommunications infrastructure, they also increase the efficiency of these technologies in the territory.

Looking through the global race to participate in the profit-sharing of the mining industry, strategic places that combine the mentioned characteristics - cheap energy, regulatory marks, and computational power - are creating new digital landscapes. China is leading this activity as home to some of the major mining hubs in the world, (Michael Rauchs, Apolline Blandin, Kristina Klein et al, 2018, 80), with main operations in rural areas close to energy sources, and the lead on production and development of Application Specific Integrated Circuits (ASIC) (8) which provides the mentioned computational power for success.
Transnistria: Duty-free zone for blockchain mining
Transnistria holds the potential to incentivize mining activities. The regulation on blockchain technologies from 2018 includes tax exemption, absence of equipment importing fees, the possibility of foreign investments, and flexible labor laws which combined give this place a great match to enable mining.

The legal mark stipulated in January 2018 with the law N. 39-Z-VI (1) adopted the creation of a Free Economic Zone for Blockchain Technology to attract investors from the volatile and rapid return cryptocurrency market. Combining low energy prices with the offer of project support, mining spaces of up 161,000 square feet, land plots next to the Kuchurgan station, and maximum assistance in energy supply the local strategy is made for including direct foreign investment possibilities (9).

The 10th section of the law determines the State responsibility on supporting the introduction of hardware infrastructure in this specific area, determining special conditions for the import of equipment for mining activities (ASICS) and other technical systems necessary for the development of blockchain technology and its implementation of cryptocurrency operations (Transnistrian Moldovan Republic, 2018).

If someone wants to invest in cryptocurrency mining the first step is to contact the public enterprise that controls it, Technopark (10). The enterprise will intermediate the energy supply by offering main resources from Moldovan GRES (Kuchurgan Power Plant) and Tirotex-Energo, owned by Sheriff Holding--the second biggest enterprise with significant political power in the unrecognized country. Gazprom is the main natural gas supplier for those facilities and is the global leader in exports. Partially privatized, it is controlled by the Russian government accumulating direct-indirect political influence in the Transnistrian territory. At the same time having prohibitive laws against crypto-economy activities, this power player has the road to sustain a parallel competitive strategy to dispute for an imminent replacement of the US/dollar global domain of traditional (in erosion) banking systems, with the marginal vantage to be a hoard of capital difficult to control and trace anonymous investments in this new free zone (Figure 4).
Figure 3: Transnistria Map pointing to the Kuchurgan Power Plant location, and Gas Pipelines. Image by the authors
Cheap energy: one of the main inputs for profitable mining activities
A combination of factors makes Transnistria an attractive place for mining activities. As in other post-soviet realities, affirmative laws - in the case of The Republic of Belarus and Poland, dubious regulations, and low energy prices are opening opportunities for crypto mining businesses as in Ukraine, Georgia, Moldova, and its breakaway state Transnistria. Power infrastructures were constructed in a context to support the scale of soviet planned industrial development. In the actual context power plants are operating with a lower level of their capacity resulting in cheap energy prices, one of the main inputs of a profitable crypto mining activity.

Kuchurgan Power Plant (1964) (11) is one of the remaining structures of URSS's ambitious plans for industrial production and is located at Transnistrian territory. It combines finite sources as natural gas, coal, and oil. Until 2018, it operated at half of its electricity production capacity of 2520 MW (Chart 3). High capacity and low demand result in waste and in one of the lowest energy prices per kW/h in Europe: 0,05 euros per KW/h (12). The average price of energy in the continent in 2019 was 0.1708KW/h. The cheapest country, Kosovo, offers energy for 0.0605 KW/h. Thus, the free zone offers energy 17% cheaper than the second-placed on the list. With many adversities, what better than combining a highly profitable growing activity with spare capacity, facilitated by a regulatory landscape strategic model to drain losses by transforming it into profit?
Figure 4: Natural Gas and Electric Power Supply combined with Cryptocurrency Mining Activities In Transnistria
Agricultural integration and Renewable Energy Grids: Circular Economy Opportunities
The Free Zoning logic offers combined incentives in order to attract international investments to a specific territory. If this proposition is not careful and inclusive with local activities, it can heighten external dependence and increase local socio-economic fragility. In 2012, 70% of Moldova GDP relied on Transnistrian companies exported products, resulting in a value of approximately US$ 700 million (Kamil Calus, 2016). Mass emigration of residents due to the low offer of work opportunities increases the economic problem. According to the scholar of Eastern Europe and Asia studies Kamil Calus (2016) with the low demographic concentration of the breakaway territory, the local market becomes susceptible to being shaped by external forces.

The landscape of Transnistria provides favorable conditions to produce a rich variety of agricultural activities, containing fourteen different ground quality and a coverage of 90% of fertile soil known as black-earth (chernozems) (13). Among the six subdivisions in the Transnistrian territory, the Slobodzeya district presents a wider range of agricultural crop production. Between this district and the Ukrainian frontier, the agricultural potency in Transnistria encounters its biggest activity held by local producers (14). Slobodzeya and its surrounding villages concentrate 400 local producers and small enterprises. Being mostly formed by agricultural land, the proximity to the Transnistrian capital Tiraspol and the second-largest city Bendery also reinforce the local economy (15).

The arrival of mining farms in the region carries the potential to trigger different forms of land stewardship if combined with agricultural crops. Some experiments (12) show that the energy consumption by mining farms produces excess heat that can be redirected to agricultural processes as a cogeneration model, which could avoid the use and expenses of traditional heaters during the winter to maintain the necessary infrastructure.

The local agricultural production can work with existing independent mining activities as a catalyzer to empower local agencies.(16) In addition to redirecting the heat from crypto mining to heating crops, cryptocurrencies also serve as an alternative subsidy as high-fast profit for amortizing new energy grid and farming structure initial investments. Transnistria has a frost-free season from 167 to 227 days per year (17) in which solar panels could serve as an additional branch of clean and locally produced energy. (18)

A study with 93 mining facilities (representing a third of the global capacity of mining) estimates that 76% of the identified energy mix includes renewable sources (19). Currently, the cost of fabricating renewable matrices is more economically viable than traditional matrices. Hence the investment in solar panels, wind or tide (ocean energy of Black Sea) infrastructures would allow the mining ecosystem to keep functioning and to grow further as a decentralized system. Both mining agents and local farmers could benefit from an autonomous power grid with detached dependency from international energy sources. It would be the cheapest way to make Tranistria's energy potential grow and the mining market prosper.
Figure 5: Detail of mining farms installation and infrastructure
Figure 6: Local-scale diagram of a potential circular economy model. The Transnistrian rich soil for agriculture, the surplus energy from mining containers, and the potential installation of renewable energy are spatial components that can leverage local accountability and alternative practices of land and economy stewardship.
Figure 7: Regional Scale diagram of potential alternative spatial arrangements under the free zone regulation from 2018. The heat generated from mining infrastructures can reduce the costs of agricultural production. And renewable energy infrastructures can empower the local economy to become less dependent on natural gas energy supply.
At a first sight, duty-free zoning development models worldwide conditions might seem less favorable to local activities, labor security, and tax reinvestments in public services. But the cryptocurrency operating system that the free zone allows might also carry the potential to support local activities. Smaller activities could avail the free zone potential to faster repay initial investments, reinvest returns, diminish maintenance costs and waste by reutilization and cogeneration. The disruptive crypto-economic dynamics can leverage possibilities to think towards inclusive sustainable development.

The possibilities are open for unrealized potential. The absence of clear regulatory laws on digital assets and its parallel implications in worldwide discussions are resulting in questionable structures. With the promise of turning a former Soviet ruins tourism spot into a cryptocurrency mining center, there is a risk of centralization, an increase of external dependence, and a decrease of socioeconomic stability. In this scenario, this model can have very little impact on positive territorial improvements. But a third scenario may arise from possible integrated development strategies with the use of crypto-economics and the free zone to create a local strategy. The favorable scenario to profit from mining, taking advantage of the free zone incentives and the secondary market for the sale of ASIC and its energy surplus, can create an ecosystem system for local production and consumption.

With the recent application of the law and its local recognition, there is still a gap in how these results can take part. We believe that digital infrastructure maintenance with cogeneration, renewable sources, and other possible circular applications carry the potential for positive solutions. Idealized to be decentralized, the crypto-economy opens possibilities as for example pooling resources through Initial Coin Offerings (ICOs) - a branch of decentralized venture capital to raise funds - that can finance cryptocurrency and blockchain projects. Even with attempts at monetary and political centralization, this territory holds the potential to strengthen the local agency and economic development through integrated sustainable landscape investment networks.

The decentralized monetary revolution of cryptocurrencies may strengthen Transnistria's local agency, but can only be achieved if thinking beyond mining itself. A circular economy considers all parts of the cycle of production and consumption. The crypto promise in combination with energy production and local practices can provide keys for alternative models of value generation. Ballasting currencies with sustainable tangible goods can lower the high market volatility, transforming pure speculation into a circular economy format.

This could be another romantic version of an impending dystopian future, but we seek to point out ways to start thinking about practical models for creating a multi-scalar sustainable and independent present, at territorial, cultural, economic, political, and ecological levels.

Laura Pappalardo is a student in the Master of Environmental Design program at the Yale School of Architecture. Before Laura worked as an Architect in São Paulo. She has a BA in Architecture and Urbanism from Escola da Cidade (São Paulo, 2017).

Paula Palermo works with Smart Cities Ventures. In 2019 she received an Executive Certificate on Financial Innovation and Social Inclusion from Georgetown University. She has a BA in Architecture and Urban Planning from Escola da Cidade (São Paulo, 2018) and in Economics from PUC-SP (São Paulo, 2018).

Rafaela Romano has a master's degree in anthropology at the University of São Paulo and head of marketing at Swipe, a fintech of white brand digital wallets. She is recognized by Cointelegraph as one of the most influential people in the cryptocurrency market in Brazil, working since 2017 with funds, exchanges, and portals in that sector.
(1) Transnistrian Moldovian Republic. Law on the development of information blockchain technologies in the Pridnestrovian Mondavian Republic. Supreme Council. January 31, 2018. Accessed on 19/07/2020. Available at:
http://president.gospmr.org/pravovye-akty/zakoni/zakon-pridnestrovskoy-moldavskoy-respubliki-o-razvitii-informatsionnih-blokcheyn-tehnologiy-v-pridnestrovskoy-moldavskoy-respublike-.html
(2) Satoshi Nakamoto. "Bitcoin: A peer-to-peer electronic cash system" (2008). Accessed July 19, 2020. Available at: https://bitcoin.org/bitcoin.pdf
(3) Blockchain is a "timestraping transactions by hashing them into an ongoing chain of hash-based proof-of-work" (Satoshi Nakamoto, 2008, 1)
(4) Proof-of-Work system is a consensus mechanism that uses computational processing to protect networks against denial-of-services or 51% attack.
(5) Whoever wins the competition can add valid blocks and receive the newly created bitcoin as rewards for computing power. "The finder of the block is rewarded for the efforts with a special transaction. Creators of a block are currently allowed to send 12.5 newly created coins to an address of their choosing. This is a fixed reward that halves every four years (210,000 blocks). (...) The reward provides an incentive to participate in this type of network. The more computational power one has, the bigger the share of all distributed rewards that go to that miner." Alex de vries, 801, 2018.
(6) The 51% attack refers to a hypothetical attack that would happen when a group of miners held more than 50% of the Bitcoin network hashrate, thus being able to carry out fraudulent transactions.
(7) Mix." Bitcoin mining consumes more electricity than 20+ European countries". The Next Web, November 23, 2017. Accessed July 19, 2020. Available at:
https://thenextweb.com/hardfork/2017/11/23/bitcoin-mining-electricity-africa/
(8) Application-Specific Integrated Circuit (ASIC) in cryptocurrencies context is an integrated circuit chip customized for mining bitcoin with high efficiency.
(9) Transnistria Blockchain Agency. Access on July 03, 2020. Available at:
http://transnistria-blockchain.com/ Transnistria Blockchain Agency
(10) Technopark OJSC. Access on July 03, 2020. Available at:
http://tehnoparkpmr.md/kompany/4-o-kompanii.html
(11) See http://moldgres.com/
(12) See the Cryptomato project. Access on August 03, 2020. Available at:
https://news.bitcoin.com/cryptomatoes-using-excess-mining-heat-to-grow-produce/
(13) Dnister Moldovan Republic. Atlas. Tiraspol, 2000.
(14) "Slobodzeysky district will easily feed the whole of Transnistria" (2018) Accessed July 19, 2020. Available at:
https://novostipmr.com/ru/news/18-07-21/slobodzeyskiy-rayon-zaprosto-prokormit-vsyo-pridnestrove
(15) "Slobodzeya district: report of the Head of State Administration" (2020) Accessed July 19, 2020. Available at:
https://novostipmr.com/en/news/20-02-06/slobodzeya-district-report-head-state-administration
(16) Check out Roman Lutsenko history on Hannah Lucinsa Smith. "The Shady Cryptocurrency Boom on the Post-Soviet Frontier" Wired, Backchannel. October 29, 2019. Accessed June 27, 2020. Available at:
https://www.wired.com/story/cryptocurrency-boom-post-soviet-frontier/
(17) Dnister Moldovan Republic. Atlas. Tiraspol, 2000.
(18) Hannah Lucinsa Smith. "The Shady Cryptocurrency Boom on the Post-Soviet Frontier" Wired, Backchannel. October 29, 2019. Accessed June 27, 2020. Available at:
https://www.wired.com/story/cryptocurrency-boom-post-soviet-frontier/
(19) Building Technologies Program Office of Energy Efficiency and Renewable Energy U.S. Department of Energy"Energy Savings Estimates of Light Emitting Diodes in Niche Lighting Applications" (2008). Accessed July 19, 2020. Available at:
https://www.energy.gov/sites/prod/files/maprod/documents/Energy_Savings_Light_Emitting_Diodes_Niche_Lighting_Apps.pdf

BIBLIOGRAPHY:
1) Satoshi Nakamoto. Bitcoin: A Peer-to-Peer Electronic Cash System. Bitcoin.org, October 31, 2008. Accessed on July 19, 2020. https://bitcoin.org/en/bitcoin-paper
2) Alex de Vries. Bitcoin's Growing Energy Problem. Joule, Vol. 2, Issue 5, P801-805, MAY 16, (2018) https://doi.org/10.1016/j.joule.2018.04.016. Accessed on June 19, 2020.
3) Hannah Lucinda Smith. The Shady Cryptocurrency Boom on the Post-Sovietic Frontier. Wired, Backchannel. October 29, 2019. Accessed June 27, 2020. https://www.wired.com/story/cryptocurrency-boom-post-soviet-frontier/
4) Ilie Gulca și Mădălin Necșuțu. The Cryptorepublic. Anticocuptie, Center for Investigative Journalism, Moldova. April 5, 2019. Accessed on June 15, 2020. https://anticoruptie.md/en/investigations/economic/the-cryptorepublic
5) Rauchs, Michael, Apolline Blandin, Kristina Klein, Gina Pieters et al. 2nd Global Cryptoasset Benchmarking Study, 80–80. Cambridge, Cambridge: Cambridge Centre for Alternative Finance, 2018. Available at: https://www.jbs.cam.ac.uk/fileadmin/user_upload/research/centres/alternative-finance/downloads/2018-12-ccaf-2nd-global-cryptoasset-benchmarking.pdf
6)Transnistrian Moldovian Republic. Law on the development of information blockchain technologies in the Pridnestrovian Mondavian Republic. Supreme Council. January 31, 2018. Accessed on 19/07/2020.
http://president.gospmr.org/pravovye-akty/zakoni/zakon-pridnestrovskoy-moldavskoy-respubliki-o-razvitii-informatsionnih-blokcheyn-tehnologiy-v-pridnestrovskoy-moldavskoy-respublike-.html
7)Kamil Całus. An aided economy: The characteristics of the Transnistrian economic model. OSW, 2016. Accessed on July 19, 2020. Available at:
https://www.osw.waw.pl/en/publikacje/osw-commentary/2013-05-16/aided-economy-characteristics-transnistrian-economic-model

10.03.2021