Laos is currently moving forward to develop its own crypto mining and trading industry, a development that could generate over LAK 2 trillion (USD 187 million) in annual revenue for the country. Yet, analysts are raising questions about Laos’ blurry framework governing crypto trading and the impact of mining on the country’s natural resources.
Laos has one of the richest hydropower resources in the region, and it currently exports an estimated two-thirds of its hydropower production to neighboring nations. Energy accounts for about 30% of Laos’ national exports—the country brought in more than USD 2 billion from energy sales to other countries in the first nine months of 2021, up 12% from the same period last year, per The Laotian Times.
“Laos has historically focused on developing its energy sector for exporting power. What is playing out is that there has been an overcapacity issue in the hydropower sector, as Laos had this big boom of investment in new projects in the early 2000s. Yet, Laos hasn’t seen the same rise in power exports to neighbors,” Courtney Weatherby, research analyst and deputy director of Southeast Asia’s Program at the Stimson Center, told KrASIA.
In theory, Laos could utilize its hydroelectric power surplus for crypto mining to generate a source of revenue, which can be reinvested in public projects and pay down the country’s USD 14 billion debt by 2025. In September, authorities gave the green light to six companies to participate in a crypto mining and trading trial project. Two months later, the Ministry of Technology and Communications offered the first guidelines that these firms will have to comply with.
An array of ministries led by the Ministry of Technology and Communications will work with the Electricite du Laos (EDL) and with the Bank of Laos to implement the project and regulate the use of cryptocurrencies in Laos.
Dino Santaniello, head of law firm Tilleke & Gibbins in Laos, translated and explained to KrASIA some of the new rules stipulated by Laotian authorities. Under the current framework, all companies participating in the trial program need to be local companies, with no shares held by foreign investors. Selected companies can apply for both mining and trading licenses, although it is not yet known which licenses they will apply for.
Crypto mining firms are subject to a licensing fee of USD 500,000, while other requirements specify that these firms should establish their operations near hydropower plants, Santaniello added. Licensed companies need to enter a power purchase agreement with EDL, the state corporation that owns and operates the country’s electricity grid, and companies will pay a USD 1 million lump sum for every 10 megawatts (MW) of electricity, Santaniello said.
To offer crypto trading services, companies need to invest USD 1 million for an operating license, and they also need to pay a 15% fee on all crypto transactions. It remains unclear whether additional companies will be able to join the trial project or if new regulations will be announced, according to Santaniello.
Green crypto mining?
Mining crypto is the process of obtaining new tokens by solving complex calculations. This operation is often performed by powerful computers that demand a large amount of electricity to function. It is estimated that the global crypto mining industry currently uses up to 119.65 terawatt-hours (TWh) per year. For comparison, this is more than the energy used by countries like Argentina (121 TWh), the Netherlands (111 TWh), and the United Arab Emirates (113.20 TWh) in a year, according to data from the University of Cambridge.
Crypto has long been criticized for its large carbon footprint. Around 60% of coins are currently mined through energy generated by burning fossil fuels. However, surging cryptocurrency demand has motivated different countries worldwide to explore the use of green energy—including solar, wind, geothermal, and hydroelectric power—to mine crypto, hoping to reap big profits from the industry. Laos is the latest example.
However, even a “green” crypto mining industry may still impact Laos’ natural resources by increasing hydro energy demand, Weatherby said. She noted that the development of the crypto mining industry might exacerbate environmental and social concerns linked to dam projects.
“Most of the dams in Laos are built on rivers that flow into the Mekong River system. The Mekong plays an essential role in food security in the region. The more dams that are built on the river system, the greater the pressure is on certain natural flows that support key fisheries and agriculture for folks throughout the region,” Weatherby said.
According to a study by researchers from the University of Wisconsin-Madison and the University of Nevada, hydropower dams along the Mekong River have already negatively impacted the natural ecosystem. They have affected fish migration, river hydrology, and sediment transfers, impacting the communities that depend on the river for their livelihood.
Blurry crypto framework
Currently, only the six preselected companies—Wap Data Technology Laos, Phongsubthavy Road & Bridge Construction Co, Sisaket Construction Company Limited, Boupha Road-Bridge Design Survey Co, Joint Development Bank, and Phousy Group—will be allowed to participate in crypto-related activities or businesses in Laos.
The Southeast Asian country has so far kept a tight leash on crypto, having banned all crypto trading since 2018. What’s more, just one month before the approval of the trial mining program, on August 13, the Bank of Laos issued a notice warning the public about the illegal use of crypto, including Bitcoin, Ethereum, and Litecoin. The notice highlighted that many citizens are “still trading digital currencies” despite the government’s 2018 ban.
Santaniello highlighted how the current laws governing crypto in Laos have gray areas. “The current regulation does not explicitly mention cross-border transactions and the provision of services offshore. These types of transactions may be subject to the interpretation of the local authorities whether they are permitted or not.” He warned that the regulations recently presented for the trial project fail to provide a clearer framework regarding crypto trading.
Besides this lack of clarity, a local legal expert who spoke to KrASIA on the condition of anonymity mentioned that there hasn’t been “enough transparency” on how the companies involved in the trial project were selected. He added that the Joint Development Bank is the only financial institution part of the project, while the rest of the chosen companies don’t have any previous experience in crypto mining.
“Most of the companies chosen by the Lao authorities to participate in the sandbox program have been involved in the past in important infrastructure projects and are familiar with working with the government,” the source said.
Rising interest in the local crypto market
Despite regulatory and environmental concerns, Santaniello is optimistic about the future of the local crypto industry. “It is likely that crypto trading transactions will continue to grow. A regulatory framework will allow for better management of these transactions, which to date may be difficult to assess or control,” he said.
The potential local market for crypto in Laos has already attracted the attention of international financial institutions, Santaniello said. “We have been regularly receiving requests for advice on the cryptocurrency framework in Laos. There is a potential market of a size that’s interesting enough for clients to request our advice.”
Weatherby believes it is also worth exploring if crypto mining could support the development of alternative energy projects like wind and solar, which Laos has the potential to develop. “It doesn’t necessarily have to be hydropower,” she said.