Kazakhstan Is No Longer A Paradise For Bitcoin Miners, Here's Why!

Bitcoin miners started complaining about conditions in Kazakhstan. (photo: doc. unsplash)

JAKARTA - Kazakhstan may no longer be the haven for bitcoin as it used to be. Several major crypto miners are now looking to leave the global crypto hub after last week's internet shutdown has added to concerns about regulatory tightening.

The shutdown of the government web during the rise of unrest in the country, paralyzed the world's second-largest bitcoin mining hub. It has even caused bitcoin's global computing power to drop by about 13% as the data centers used to produce the cryptocurrency were shut down.

But Alan Dorjiyev of the National Association of Blockchain Industry and Data Centers in Kazakhstan, which represents 80% of the country's legal mining companies, said most crypto producers are now back online.

It's just that the resumption of mining operations might belie the impending problems for the fast-growing cryptocurrency industry. According to the four main miners interviewed by Reuters, some said they, or their clients, might look to other countries to operate in.

"Internet outages add to concerns about stability and business prospects due to tighter government oversight," the miners said.

Vincent Liu, a miner who moved his operations to Kazakhstan from China to take advantage of the country's cheap electricity, said the changing environment had prompted him to shift his operations to North America or Russia.

"Two or three years earlier, we called Kazakhstan a mining industry paradise because of its stable political environment and stable electricity," Liu said.

"We are evaluating the situation ... I think we will keep some of the hashrate in Kazakhstan and will move some to other countries," Liu said.

Bitcoin and other cryptocurrencies are "mined" by sophisticated computers that compete with other computers connected to a global network to solve complex mathematical puzzles. The process consumes electricity and is often powered by fossil fuels.

Kazakhstan became the world's No.2 bitcoin mining center after the United States last year. The country has withdrawn an influx of miners and data center reservations from China, the country's former number one mining hub, following a crackdown on the crypto industry by Beijing.

In August, Kazakhstan also accounted for 18% of global "hashrate," crypto jargon for the amount of computing power used by computers connected to the bitcoin network. The utu count was up from 8% in April, before Chinese miners moved machines and bought capacity at Kazakh data centers.

Kazakhstan's crypto mines are mostly powered by aging coal-fired power plants. This is a headache for the authorities as they seek to decarbonize the economy. Power-hungry miners have forced the former Soviet Union to import electricity and ration domestic supplies.

The government is now looking for ways to tax and regulate most underground and foreign-owned industries. Last year the country's government planned to crack down on unregistered "grey" miners who were expected to consume twice as much power as "white" or officially registered ones.

Din-mukhammed Matkenov, the co-founder of crypto-miner BTC KZ, said the influx of Chinese miners has exacerbated the problem for domestic miners by devouring electricity more greedily. Now their clients may want to move to the United States and Russia after the restrictions.

"We think the development and stability of the mining industry in Kazakhstan is in jeopardy," said Matkenov, whose company has three data centers in Ekibastuz, a city in northern Kazakhstan, that run more than 30,000 mining rigs. "Uneven electricity supply has complicated the company's business," he added.

"It's very unstable and it's very difficult to predict the benefits of paying electricity bills and salaries. Right now we are almost bankrupt and clients are trying to find another country where they can move with a more stable government decision," he said.

Kazakhstan's energy ministry did not immediately respond to a request for comment from Reuters on the condition.

However, Kazakhstan's taxes, relatively low labor and equipment costs still offer advantages, the four miners said. Electricity costs are at least US$0.03-0.04 per kilowatt, Matkenov said, similar to the United States and lower than US$0.05 in Russia.

“There is an ease of doing business in Kazakhstan that allows well-capitalized projects to deploy much more quickly than is possible in the West,” said Mike Cohen of Canada-based miner Pow.re.

"Those who are willing to set up operations in the region have a greater tolerance for geopolitical risk and are not deterred by fossil fuel-based energy sources," Cohen said.