What you need to know about the crypto mining trend in Kazakhstan

What you need to know about the crypto mining trend in Kazakhstan
FILE PHOTO: A representation of the virtual cryptocurrency Bitcoin is seen in this picture illustration taken October 19, 2021. REUTERS/Edgar Su
From August 2020 to August 2021, Kazakhstan’s share of the global bitcoin hash rate (e.g., its share of global bitcoin production) went up from 4.6% to 18.1%.

There’s crypto activity in Kazakhstan?

  • Yep, that country you haven’t thought about since the last Borat movie came out is a pretty big deal when it comes to cryptocurrency.
crypto mining in Kazakhstan
Source: ccaf.io
  • Much of this move has come from major mining companies, such as Canaan, a crypto mining hardware manufacturer that has expanded its growth in Kazakhstan.
  • And Kazakhstan, for its part, embraced the crypto miners with regulations that make the country seem hospitable to them.

So is Kazakhstan winning from all of this?

  • Not so much. In theory, the country would be bringing in some money, especially with some of the taxes placed on the mining companies moving there from China.
  • However, the amount of crypto mining that moved to Kazakhstan represents massive energy usage – far more than the country was prepared to provide.
  • In 2021, the country’s total energy usage went up by 7%, mostly attributed to the arrival of crypto mining companies and their data centers.
  • This sudden increase in power usage meant that the nation began to see power shortages, amounting to more than 7% in the first three quarters of last year.
  • The problem didn’t get much better, and in late January of this year, the Kazakh government shut off power to crypto mining data centers.
  • And if you’re wondering if that would have cost the government a lot of money, it’s hard to say because crypto can easily be mined in one jurisdiction and sold in another, bringing very little, if any, money to the country it’s mined in.

How are the mining companies responding?

  • Well, some are just leaving the country for somewhere energy shortages won’t be such a problem.
  • The most recent example of this was BIT. This Hong Kong-based crypto mining company announced in its quarterly earnings report on February 17 that it was canceling a US$10 million data center construction project in Kazakhstan.
  • But they’ve also pushed back on the idea that they caused the problem in the first place, placing the blame instead on illegal mining farms, also known as “gray mining.”
  • It isn’t clear how much of the problem was caused by gray mining and how much of it was caused by legitimate legal mining projects.
  • These mining companies and their advocates have also said that the government response to the power shortages has been insufficient.

What’s next?

  • Well, many of these mining companies are moving out of Asia for good now, finding their home in Europe or overseas in North America.
  • But, this isn’t necessarily the perfect solution either since more crypto regulation in the United States, for example, is being worked on right now.
  • But the crypto world runs on electricity, and without it, the companies are dead in the water. And, it doesn’t seem likely that crypto will have the same effects on the US power grid that it did on the Kazakh grid.
  • During the deficits, Russia, the primary energy source in Kazakhstan, has said that the Kazakh power grid is outdated and needs an update.
  • Ultimately, though, the great crypto migration isn’t over yet, and it doesn’t seem like it will be anytime soon.

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