The National Association of Blockchain and Data Centers Industry has shared its concerns over the situation with the cryptocurrency mining industry in Kazakhstan. Many digital mining companies tend to leave the country as the government has blamed them for the overconsumption of electricity.
In August 2021, Kazakhstan ranked second in the global bitcoin hashrate as 18.1% of all transactions, with bitcoin being processed in Kazakhstan’s data centers. The economic effect of the industry may reach $1.5 billion in the next five years with taxes of more than $300 million, according to the association.
However, the massive migration of cryptocurrency miners to Russia and other countries has begun.
The reason for that migration is the small amount of electricity Kazakhstan has been offering to crypto miners as the entire country has been suffering from a shortage of power, according to the Ministry of Energy and Kazakhstan Electricity Grid Operating Company (KEGOC). The government is going to save electricity at the expense of cryptocurrency mining companies, not the regular consumers, Vice Minister of Energy Aset Magauov said.
“We are upset that the national monopoly KEGOC and the Ministry of Energy have often changed their position regarding the crypto mining industry. Over the last months, the investment climate in the country changed due to risks that the local legislation doesn’t cover. Even though a couple of months ago Kazakhstan was considered a high-tech site for foreign investments, now investors say it is too risky to put money in Kazakhstan’s crypto mining industry. Sadly, our company has to move as our mining farms didn’t receive energy supply over two months. We are ready to operate under the rule of law, we are ready to pay taxes as any other legal business does and we are ready to facilitate the industry’s development. But we haven’t seen any reliable support from the government yet,” said Leon Yohai, a Qazaq DCS investor from Greece.
There is no official country data on bitcoin hashrate in the world but the association has said that many legal crypto miners tend to leave Kazakhstan.
“This is a quite normal reaction of businesses because there is no guarantee that your mining company wouldn’t be cut from the power grid even if you meet KEGOC requirements and your mining farm is registered at Astana Hub. To avoid losing money miners are moving to Russia where no customs fees are required and they easily find a proper site with a power grid,” explained Chairman of the Association Alan Dorjiyev.
So far, Kazakhstan’s authorities continue to cut legal miners from the electricity even though President Kassym-Jomart Tokayev has ordered the government to settle all legal aspects of the issue. He also promised that legal mining companies will be able to continue their operations in the country with no additional restrictions.
“Our company is a pioneer. We’ve worked here since 2017. Over four years we attracted a huge number of foreign investments. However, since October 2021 we’ve been suffering from daily power outages even though we have a legal contract with KEGOC. Moreover, neither KEGOC nor the Ministry of Energy have given us any intelligible explanation of the situation. We don’t know what they are going to do. Cryptocurrency miners are energy consumers of the third category. Even though we have contracts we haven’t received services as they should be offered. During freezing in North Kazakhstan where our farms are located, daily power outages are causing damage to expensive mining equipment which we’ve brought to Kazakhstan legally, we’ve paid all the fees. This situation is unacceptable. It has already caused business losses and has also damaged the reputation of the country. Currently, our clients and investors have been trying to move to Russia, the U.S. or Canada where they can operate with less risk,” said Aybek Umbetalin, commercial director in BTC.KZ.
“There are no attempts by the authorities to find illegal miners, who can consume up to 1,200 Megawatt,” said Alan Dorjiyev. “So far, the Ministry of Energy reported only 13 mining farms being closed down; they consumed 120 Megawatt or only 10% of what illegal miners may consume. This is ridiculous because law enforcement agencies can easily find these entities just looking at power consumption and internet traffic data,” he added.
In October, the association shared its suggestions on the issue with the Ministry of Energy. All of these ideas developed by the organization were positively received by the ministry but have never been implemented in practice.
“The whole high-tech industry with multi-billion dollar potential is under threat of dying because of misuse of electricity. In our country, we often talk about the creative economy but in real life, we even can’t protect what has already been created with no support from the government,” Dorjiyev stated.
According to the association, the only way to guarantee the energy security of Kazakhstan is the fight against illegal cryptocurrency mining.