Kazakhstan is losing its glamor as a “paradise” of Bitcoin

Kazakhstan may no longer be one of Bitcoin’s “sacred cows” as it once was, according to some big miners seeking to leave the country after last week’s internet shutdown sparked fears of tightening of legislation.

According to Reuters, government internet outages during the recent violent unrest in the country, which is the second largest cryptocurrency mining center in the world, caused a drop in the global computing power of Bitcoin by about 13%, as the data centers used for the production of cryptocurrency were shut down.

Alan Dorjiyev of the National Association of Blockchain and Data Center Industry in Kazakhstan, which represents 80% of the country’s legal mining companies, said most cryptocurrency producers were now back in business.

However, the resumption of work may hide under the rug the problems facing the fast-growing cryptocurrency industry, according to four major miners interviewed by Reuters, with some saying they or their customers may be looking for other countries to be active.

The internet outage is exacerbating growing concerns about the stability and prospects of the activity, as there is tighter government oversight, the miners said.

Vincent Liu, a miner who relocated to Kazakhstan from China to take advantage of the country’s cheap energy, said the changing environment had led him to consider relocating to North America or Russia.

“Two or three years ago, we called Kazakhstan a mining paradise because of the stable political environment and stable electricity,” Liu said.

“We are assessing the situation. I guess we will keep part of the hashrate in Kazakhstan and transfer another one to other countries,” he said.

Bitcoin and other cryptocurrencies are being mined by powerful computers that compete with others connected to a global network to solve complex mathematical puzzles. The process consumes large amounts of electricity and is often fueled with fossil fuels.

Kazakhstan became the No. 2 Bitcoin mining hub in the world after the United States last year, attracting miners and data center bookings from former world leader China following Beijing’s crackdown on the industry.

In August, Kazakhstan accounted for 18% of the global “hashrate” (the term encryption for the amount of computing power used by computers connected to the Bitcoin network). That was up from 8% in April before Chinese miners moved machinery and bought capacity at data centers in Kazakhstan.

Kazakhstan’s cryptocurrency “farms” are fueled mainly by aging coal units, which are a headache for authorities as they try to decompress the economy. The miners have forced the former Soviet state to import electricity and cut domestic supplies.

The government is now considering how to tax and regulate the – largely – underground and foreign-owned industry. Last year, he stressed that he planned to crack down on unregistered “gray” miners, who he estimated could consume twice as much energy as “white” or officially registered miners.

Din-mukhammed Matkenov, co-founder of crypto miner BTC KZ, said the influx of Chinese miners had exacerbated domestic problems by “swallowing” large amounts of energy. Customers may be looking to move to the United States and Russia, he said.

“We believe that the development and stability of the cryptocurrency mining industry in Kazakhstan is in jeopardy,” said Matkenov, whose company has three data centers in Ekibastuz, a city in northern Kazakhstan that operates more than 30,000 mining platforms. The intermittent power supply has complicated the operation of the company, he added.

“It is very volatile and it is really difficult to predict profits in order to pay the electricity bill and wages. At the moment we are close to bankruptcy and customers are trying to find other countries where they can relocate with more stable government regulations.” .

Kazakhstan’s Ministry of Energy did not immediately respond to a request for comment.

Nevertheless, Kazakhstan’s relatively low taxes, labor costs and equipment still offer benefits, the four miners said. Energy costs about $ 0.03-0.04 per kilowatt, Matkenov said, similar to the United States and lower than $ 0.05 in Russia.

“In Kazakhstan there is a ease of doing business that allows well-capitalized projects to grow much faster than would be possible in the West,” Mike Cohen of Canada-based mining company Pow.re told Reuters. .

“Those who are willing to set up businesses in the region are more tolerant of geopolitical risk and are not discouraged by fossil fuel-based energy sources.”

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