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The catastrophic fall of bitcoin mining industries in Kazakhstan left people baffled with a lot of unanswered questions. Many of us still wonder what happened exactly? In the past, so many of news agency covered how Kazakhstan become second-largest hub for mining bitcoin.
But later, the fall of bitcoin mining in Kazakhstan was allover the news. But the million-dollar question is: is Kazakhstan a lost cause for mining, or is there still hope?
What is Bitcoin Mining?
The process is complex yet easy to understand; it is like securing and updating a giant public record of bitcoins called blockchain. The miners use heavy-processing computers to solve very complex puzzles, and whoever does it earn a reward called a new bitcoin. Which they add to the blockchain so it can be cross-checked later, and the network remains secure.
In short, it’s a process of solving complex riddles to validate a bitcoin transaction and-earn a new bitcoin.
The Rise of Bitcoin Mining In Kazakhstan
Kazakhstan has relatively low electricity prices compared to the rest of the world.As of 2022, the average cost of electricity was $0.044 per kilowatt-hour. But, a recent article on The Times of Central Asia reports a 26% rise in the cost over the years. The new cost is about $0.055 per kilowatt-hour. It is still cheaper than costs in the USA and Europe.
The cheapest cost of electricity was the honey that attracted miners to Kazakhstan from all around the world. Especially after China introduced a nationwide ban on Bitcoin mining, Chinese Bitcoin miners had shifted their operation to countries like Kazakhstan and Ethiopia.
Notably, there was a dramatic surge in electricity consumption of the country, Bitcoin mining capacity went from 500MW to 1500MW in a couple of months. And the global rate went from 6% to 18%.
The Unexpected Downfall
The government of Kazakhstan didn’t anticipate that the influx of these many miners would create problems. The electric grids were made to provide electricity for its citizens, and now they are used in mining operations. A bitcoin mining machines consumes 6 times more electricity than any normal computer. This heavy load on the grid started to cause sudden blackouts all over the country.
The government taxed bitcoin mining. They did this to keep up with electricity demand. But, the industry resisted the tax. Also, there are frequent blackouts in the country, which has a population of 19 million. The crypto operations were consuming more than 7% of the entire nation’s electricity. This shortage of power caused tension among citizens, which later turned into a mass protest. So the government effectively cut the power supply for mining operations in order to end the protests. All the mining operations were shut down and international miner had to leave the country.
The regulatory landscape for Crypto Mining
In 2021, Kazakhstan legalized Bitcoin mining. It aimed to attract foreign investors and miners. They would boost the Kazakh economy and create digital currency. But the whole plan backfired, so the government introduced a new regulation. If you want to mine in Kazakhstan, you must obtain a state license and purchase electricity if there is additional surplus.
After FTX, a major trading platform, fell. Coins from Kazakhstan will only trade on their registered platforms. They are at the Astana International Finance Centre.
The government of Kazakhstan has introduced specific regulations for crypto mining operations to ensure compliance.
Current Challenges of Mining Bitcoin
Before the power grid overloaded, Kazakhstan was heaven for crypto mining, but after the year 2021, it’s never the same. After the massive protest, the government had to introduce new law and regulations, which turned out to be rather challenging for miners in Kazakhstan.
There are a few challenges that miners are facing now, as of 2024, those are given below.
The first challenge is that all the miners need official licenses to mine in Kazakhstan. Miners must go through Astana International Financial Centre (AIFC) to register. They need this to mine in Kazakhstan.
The second challenges that miners are facing is now, as per the new law, all miners must sell their earned bitcoin by 25% to 75%. In the coming years, 75% of mined Bitcoin must have to be sold.
Another challenge is that now miners have to buy power separately to conduct their mining operations in Kazakhstan. Buying electricity will be possible trough this national system of auction called KOREM. You will only get this power from the auction if the power grid has produced “excess”. Otherwise, miners have to find other way for generating power for mining operations.
The last challenge is, if miners buy power from auctions or import it from nearby countries, then they have to pay tax for that. The current price is $0.055 per kWh, and for renewable energy sources, a direct tax of $0.022 per kWh is also chargeable.
Also Read: Cryptocurrency Cloud Mining: Dubai’s Goldmine
Is There Any Future Scope For Mining Bitcoin?
At present, Kazakhstan generates 70% of its electricity by burning coal as its primary source, which is bad for the environment. The country is trying to shift towards more sustainable options, such as renewable energy.
As per Zhomart Mominbayev, head of the supervisory board of Techno Group Service, said to the media, “The country actively subsidizes a foreign manufacturer, which in turn reduces the possibility of developing domestic producers of renewable energy technologies.”
He added, “The development of the green tech association concept for manufacturers is underway. It aims to establish equitable competitive conditions for the growth of local renewable energy equipment and technologies in Kazakhstan. The Kazakh Ministry of Energy and the KEGOG national electricity grid operator are actively working on the reliability of the projects,”.
In short, Mominbayev means that the government of Kazakhstan heavily relies on foreign parties for renewable energy sources; instead, they should build a domestic industry. He believes that it’s possible if the government creates a supportive environment for Kazakh manufacturer.
If Kazakhstan’s government can build a strong base for local renewable energy. Then, the cost of electricity is likely to fall. The government’s future projects show their interest in supporting mining operations in Kazakhstan. So, there is still a hope for miners in Kazakhstan.
