This year Kazakhstan experiences electricity shortage caused by the booming crypto mining industry. According to the Cambridge Centre for Alternative Finance, Kazakhstan has become the world’s second-biggest bitcoin mining location after the United States in recent months. The county is struggling to meet the energy needs and several mining companies are already looking to relocate to countries with more stable energy supplies.
China launched a government offensive against bitcoin miners and Kazakhstan has become a hotspot for cryptocurrency mining. The country maintains limited electricity tariffs and it is a major fossil fuel producer. The rapidly growing demand for electricity needed to power energy-intensive coin miners was not satisfied.
The neglected infrastructure and insufficient generating capacity in Kazakhstan caused a lot of issues. There was no doubt that the responsibility would lie on the miners first. The authorities blamed crypto industry for the growing deficit in the country and legal authorities proposed higher electricity tariffs for miners.
Didar Bekbauov is a founder of local cryptocurrency mining hosting company Xive. His company had to close its main facility in southern Kazakhstan because its power supply was abruptly cut in November. He commented on Kazakhstan’s policy on social networks, “They made mining scapegoat”. The company still operates another mining farm in the country, but it’s also exploring options to relocate some of its operations to the United States.
In November, National Association of Blockchain and Data Centers Industry in Kazakhstan reached an agreement with the country’s network operator, KEGOC, to provide uninterrupted power to registered miners. When the state-owned utility company failed to fulfill its end of the deal, mining companies began to close their operations in the country.
Another major crypto farm operator, Bitfufu, backed by Bitmain, has closed its crypto farms in Kazakhstan and is also moving to the United States. The situation in basements and garages don’t change though. While the restrictions imposed by the electricity distribution company affected regulated cryptocurrency mining businesses, small crypto farms continue to mine digital currency in shadow. These miners burn large amounts of electricity and pose another problem for Kazakhstan.
Initially, Kazakhstan welcomed cryptocurrency miners and took steps to regulate the sector through legislation. According to estimates released in October, the country can expect crypto mining to bring about $1.5 billion to its economy over the next five years and more than $300 million in tax revenue. In January 2022 registered crypto mining companies will have to pay a new tax of $ 0.0023 per KWh of electricity. Kazakhstan also plans to build power plants with a total generating capacity of 3,000 megawatts in the coming years to increase the share of renewable energy sources, and additionally considers nuclear energy.
While the governmental officials are making plans for almost illusive future realization, crypto companies are looking for their own ways. In the shorter term, Bekbauov is betting on gas, although moving to the States is still an option. The Xive company plans to construct a gas-fueled facility that will buy supplies directly from a new power plant. This gives some kind of hope to the crypto community that cryptocurrency mining has a future in Kazakhstan.