Kazakhstan: Is it the end for a Crypto Mining giant?
When you think of a powerhouse country in the crypto space, you will definitely name USA, Russia or India because of their massive influence and exposure in the space but Kazakhstan has slowly crept its way to become the second-largest country in the crypto mining sector with more than 20% of the global hashing rate coming from this region. Although Kazakhstan has seen to benefit a lot ever since their neighboring country China pulled out from the crypto space, recent political unrest and internet shutdowns may seem to slow down their progress to the top. So how did Kazakhstan grow so rapidly in the crypto mining space? Will the recent events signal the end for Kazakhstan in this space?
How did the crypto mining sector grow so rapidly?
Kazakhstan is a transcontinental country that sits in between the region of Central Asia and Eastern Europe and currently is the 9th Largest Country in the World in terms of landmass. Kazakhstan is also the largest country for GDP in Central Asia but its regulations and resources are priming their growth in the crypto space.
The Kazakh government has adopted an overall friendly approach to crypto ever since the Crypto Boom in 2017 with the Government Backed AIFC (Astana International Financial Centre) plans to introduce a digital currency. In 2018 the government turned to disregard the suggestion made by the National Bank of Kazakhstan of a blanket ban on cryptocurrency and instead stated their intentions to regulate the space.
Things started to look more concrete and positive for local crypto miners in 2019 as local media reported that Kazakhstan’s lawmakers wouldn’t be taxing cryptocurrency mining until the mined assets are exchanged for fiat money, as crypto mining would not be treated as an entrepreneurial activity but rather a “purely technological process” and in 2020 the bill was signed to legalize mining activity although the people involved must duly report their activities with the authorities.
It was in 2021 that things started to take a huge turn as not only Bitcoin was on the rise but Kazakhstan’s contribution to the mining sector for the Bitcoin Network spiked up from 6% to 18% by the end of the year. One of the main reasons is what we mentioned before China pulled out from the cryptocurrency sector, as China is not only the leader in the crypto mining space but also in the mining rigs sector. China, at its peak during 2021, controlled 65% of the global bitcoin hash rate so when mining was deemed illegal in China, it would be quite an obvious choice to relocate somewhere close as the cost to set up and ship the mining rigs from China will be economical .
It was then that Kazakhstan with its crypto-friendly regulation which also allowed the imports of mining rigs tax-free presented itself as a viable option to pounce on the opportunity. It is also less known that Kazakhstan for a few years has been a net exporter of electricity reaching its peak in 2019 which resulted in cheap electricity rates compared to other mining powerhouses. With the recent value of bitcoin halving thus affecting miners’ earnings, cheap electricity rates paired with the extremely cold weather in Kazakhstan meant that miners who set up in this region could eventually significantly cut their costs and boost their earnings.
This obviously leads to Kazakhstan receiving an influx of investments in setting up mining farms across the country, among those are Energix which has built the third-largest mining farm in Kazakhstan spanning 15 hectares of land and filled with 50,000 mining rigs. Also settling in Kazakhstan are the Chinese giant mining firm Bit Mining which has increased its presence heavily in the region ever since the China Mining crackdown in June 2021.
Kazakhstan has been steadily on the uptrend in the mining sector in which some of the industry experts predicted that it could take the top spot in a couple of years with the USA’s unclarity in crypto regulations. Obviously, this growth has to come to an end as in 2022, the Kazakhstan mining sector could lead to a downfall after huge political unrest and shutdowns hampering its growth but could this be the signal of an end?
Is the game over?
Kazakhstan’s future in the mining sector obviously will be affected badly in 2022 with the recent riots by the government further adding to the uncertainty within the region. Not only that but the recent internet shutdown executed by the government in order to redeem the protest has left the mining rigs to be not operational for six days with an estimated loss of $20 Million and cost the whole global network to lose more than 20% of its hash rate. These scenarios obviously didn’t play well to attract investors into the country and also sent the crypto market to a downtrend it has not quite yet recovered from.
Adding into the woes in Kazakhstan are the rising fuel prices which is quite strange for an oil-rich country and some of the blames is pointed to the rise in mining farms within the region. Kazakhstan has seen its electricity exports going on a downscale as the Electricity Production struggled to keep up with its Consumption which reached an all-time high in December 2021 at 12,062 GWh. Obviously, there is a correlation between the spike in Electricity Consumption and the rise in the number of mining farms In the past 2 years as Mining takes up a lot of energy but it is a major problem when considering that most of the Electricity Production in Kazakhstan are from Non-Renewable such as Coal and Oil. Unless Kazakhstan could eventually switch to more renewable sources it will hamper its growth as to support the ever-growing hash rate of the network, it will have to deplete its natural resources that could instead be used for the people of the region.
It is also not doom and gloom for the sector as although it was heavily compared with other popular mining spots such as Texas and Russia, it still provides a much more favorable electricity rate to the miners taking into account the new bill that was passed in 2022. Also, with the growing uncertainty in Russia, Kazakhstan could again be favored over its neighbor as a more efficient spot for miners to grow their ventures. Kazakhstan will continue to operate as a global hub for miners but it could see its rankings tumble as other countries battle for the growing investments in the crypto space.
We in Nagaya Technologies Pte. Ltd is excited to see the developments that are going on in the crypto space and we hope that our hybrid crypto-asset Nagaya could provide the benefit to all our holders worldwide. For more information regarding the latest updates on Nagaya and our whitepaper, you can visit us at nagaya.io
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