Bitcoin miners in Kazakhstan in crisis

For many years, the Bitcoin mining sector has been a key player in Kazakhstan's economy. However, this sector is today faced with a delicate situation. Kazakhstan-based bitcoin miners have made an urgent appeal to President Kassym-Jomart Kemeluly Tokayev to reduce electricity prices as they risk shutting down their operations by the end of the year.

In letter addressed in September directly to the President of Kazakhstan, eight BTC mining companies, including BCD Company LLP, Kinur Invest LLP, Green Power Solution Ltd and KZ Systems, expressed concerns about the high energy costs weighing on their business.

Kazakhstan's mining industry in decline

Kazakhstan has long been a major player in the Bitcoin mining sector. In 2022, the three countries with the largest share of Bitcoin hashrate are the United States, China and Kazakhstan. This accounts for 13% of the global hashrate, according to data from World Population Review.

However, today, while the price of bitcoin has been hovering around $30,000 for months, Kazakhstan's enviable position is starting to crumble. This is not only explained by the price of bitcoin but by the implementation of new regulations.

In 2022, the Kazakh government implemented strict regulations that required mining companies to register with authorities, obtain a license, and immediately sell 75% of mined bitcoin. In addition to these new regulations, a significant increase in taxes on energy supplied to miners has had the effect of increasing the cost of electricity. However, the cost of bitcoin mining is strongly linked to the cost of electrical energy.

In this context, miners have seen their share of global digital mining volume drop drastically from 14% in 2022 to only 4% in 2023, according to Hashrate Index.

The vision of Kazakhstan as a hub for bitcoin mining

The recent letter from bitcoin miners may come as a surprise as the Kazakh president had previously expressed his intention to make Kazakhstan a hub for digital assets. He had decided to put in place regulations that are supposed to be favorable for mining companies with a clear legal framework. However, miners believe that as long as electricity rates do not decrease, this ambition to make Kazakhstan a “crypto hub” will remain a utopia.

For them, this is even a contradictory speech that the Kazakh government would have held because the tax regulations are proving to be "ineffective and unbalanced."

It seems that the political situation has to deal with energy consumption that has become too high for the country. This would be a problem of failing infrastructure rather than unfavourable policy. In an interview on France Culture entitled " How Bitcoin mining undermined Kazakhstan ", the geographer Hugo Estecahandy explain that " The development of this mining industry has accelerated a process that had been underway for several years. The problems related to energy in Central Asia are quite old, and are linked to the fact that the electricity distribution infrastructures are obsolete.

A difficult situation across the world

The crisis in the mining sector in Kazakhstan is not an isolated case. Many countries that initially welcomed Bitcoin miners are now reconsidering their position. For example, in Iran, when there is not enough energy for the population, the government is forced to cut off miners' energy access to the national grid. It is the same situation in Kosovo where mining was banned while the country suffered regular power cuts during the winter.

We can also mention the case of Norway which tried to ban bitcoin mining in 2022 but the bill was not ultimately adopted by parliament.

In the United States, which is the country with the most bitcoin miners, it should be noted that some states are trying to reduce or limit mining by citing environmental concerns. In November 2022, New York State Governor Kathy Hochul signed a law banning mining that would be powered by fossil fuels. Similarly, in Texas, lawmakers frequently attempt to cut off miners' access to the state's power grid during certain periods. In Kentucky, a proposal to offer subsidies to bitcoin miners was rejected.

Final Word: The Uncertain Future of Bitcoin Mining in Kazakhstan

High energy costs and new tax regulations have put Kazakhstan's once-thriving industry at risk. The call from bitcoin miners in the country highlights the challenges facing the bitcoin mining sector in the country and also across the world. They could then leave the country and go to more welcoming countries like Kyrgyzstan which saw its mining revenues increase this year.

Now, it remains to be seen whether the government will make a decision that will support the sector by reducing energy tariffs and thus continue its declaration of making the country a hub for bitcoin mining. It would seem that the country must also decide on the authorized level of mining farms or undertake work to improve the energy infrastructure in the country.

The outcome of this situation will have significant repercussions not only on the Kazakh economy, but also on the future of the Bitcoin mining sector globally.

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