Kazakhstan miners: The political crisis has threatened the security and performance of mining companies. These companies provide 18% of the world's bitcoin hash rate. So what does this mean for the industry?
Vincent Liu is a miner who moved to Kazakhstan from China. He was tempted by the cheap electricity. But he went back to living with a suitcase on his back. He is considering moving to North America or Russia.
Liu is not alone. There are a lot of miners deploying capacity in Kazakhstan in the spring and summer of 2021, and they're thinking about relocating again. They don't like the nomadic life.
Miners in Kazakhstan: A Lost Sanctuary
In 2021, the Chinese authorities deported the miners. Many of them have found a new home in Kazakhstan. Cheap electricity and the authorities' position in mining have attracted several major players in this Central Asian country. Kazakhstan ranks second in terms of hash rate. In April, the Central Asian country accounted for 8% of global computing power. By August, this figure rose to 18%.
"Two or three years ago, we thought Kazakhstan was a miner's paradise due to the favorable political environment and stable Electroneum," Vincent Liu said in an interview with Reuters.
However, in early January, riots and mass protests broke out in Kazakhstan, which led to a temporary shutdown of Internet and even cell phone communication across the country. Data centers with mining equipment, as well as private mining farms that absolutely need the Internet to work, have been offline for several days.
This political instability in Kazakhstan could trigger a new wave of miner migration.
Ilman Shazhaev, executive chairman of the board of directors of digital asset manager OneBoost, believes that unrest and Internet shutdowns could pose an existential threat to the industry.
"For miners – for companies and private investors who have invested heavily in this business – the required amount of stable power supply and Internet access is critical. Security must be provided by both private individuals and the state. It turns out that both of these most important factors for miners are now under threat," Shazhaev said in a review of BeIn cryptocurrency.
According to Aaron Chomsky, head of ICB Fund's investment division, Kazakhstan was no longer attractive to miners even before the events of January.
The Internet shutdown was overlaid on top of concerns about the government's tightening of mining policies.
Kazakhstan's mines are mainly operated by outdated coal-fired power plants. These have angered the government, which needs to reduce its carbon footprint. In addition, energy-intensive cryptocurrency mining equipment consumes electricity. Earlier BeIn Cryptocurrency reported that Kazakhstan was forced to import electricity from Russia to cover its domestic deficit.
The government has raised taxes on miners and tightened regulations on the industry, much of which remains in a gray area. By some estimates, so-called gray miners consume twice as much electricity as legitimate companies.
The authorities have raised the electricity rates for miners. However, this mining tax will first hit all legitimate companies that have become hostage to this situation.
"In this case, the companies have become hostages because they have already incurred serious costs associated with relocation and it will become more difficult to simply change locations again. The situation is made worse by the government's inability to deal with gray miners who are using electricity illegally," Aaron Chomsky said.
Miners in Kazakhstan: Domestic Issues
Din-Mukhammed Matkenov, co-founder of cryptocurrency mining company BTC KZ, believes that the influx of Chinese miners has exacerbated the problem for domestic miners.
"We believe that the development and stability of the mining industry in Kazakhstan is at risk," Matkernov said. His company has three data centers in the northern Kazakhstan city of Ekibastuz with more than 30,000 mining units.
He added that the power outage has put the company's business in jeopardy.
Where should miners go?
Russia and the United States are the two most promising destinations for those who decide to leave Kazakhstan.
"The situation has changed and we are assessing the consequences. I think we will keep some of our computing power in Kazakhstan and move some of it to other countries," said Vincent Liu, a Chinese miner from Kazakhstan.
According to Aaron Chomsky, Russia seems to be a good choice considering its geographical location and common economic space with Kazakhstan.
Who will stay
Din-Mukhammed Matkenov from BTC KZ also sees Russia and the US as a promising direction. At the same time, however, he notes that Kazakhstan remains an attractive country for miners with low taxes and labor costs.
It's easier to do business in Kazakhstan, and well-capitalized projects can deploy capacity here much faster than in the West. Mike Cohen of Canadian mining company Pow.re agrees. But in order to work in the region, he says, a person must be free of geopolitical risk and comfortable with fossil fuel energy."
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