Kazakhstan: Crypto Mining Future Uncertain Amid Internet Shutdown, Political Instability
In a case of cryptocurrency mining catching a cold when politics sneezes, six days of intermittent disruption to the internet in Kazakhstan followed riots over the removal of price cap on liquefied petroleum gas on January 1st, 2022.
The blocking of the internet on January 4 by telecommunications firms in the country by orders of the government in a bid to control the flow of information, grounded the operations of cryptocurrency mining firms in the country – regarded to be the second largest in the world after the United States – and sent quivers across the global cryptocurrency industry.
In a first since September last year, the price of Bitcoin fell below $43,000 on January 6th. About 15 percent of Bitcoin miners in Kazakhstan went off the network in the aftermath of the shutdown of the internet, according to CNBC. It is a grim situation for the cryptocurrency miners, many of whom left neighboring China after a government ban on their operations to Kazakhstan in search of stable political conditions and cheap energy. The exit of miners from China resulted in the country losing its position as the biggest cryptocurrency mining hub in the world to the United States. Before now, Kazakhstan was regarded as one of the most politically stable countries of the former Soviet Union.
“Main problem for miners is blocked internet…,” Dider Bekbau, Bitcoin miner in Kazakhstan who also runs Xive, a company that provides hosting services to international miners and sells mining equipment, wrote in a tweet. The Internet was gradually restored on January 10th in some regions of the country. “We restarted half of our mining operations. We expect the rest to be started in 1-3 days,” Bekbau tweeted on Monday.
“The restorations, however, are limited, unpredictable and don’t satisfy the requirement for a stable connectivity needed for cryptocurrency mining or blockchain applications,” Isik Mater, director of research at NetBlocks, an internet monitor, told Forkast.
Prior to the unrest, the Kazakh government publicly frowned upon the large amount of electricity cryptocurrency mining, especially Bitcoin, was consuming and was considering imposing higher taxes in 2022.
Once a friendly location for cryptocurrency mining, observers say that the disruption in the last few days could force some miners to contemplate relocating to the United States which is considered the best location for miners because of its perceived political and policy stability and availability of electrical power.
“Relocating from Kazakhstan to the US is very expensive when all the costs are summed up. Relocation to Russia is possible, but pace of deployment of new facilities is (sic) Russia is very low comparing to the US. Mostly ASICs stay inside Kazakhstan,” Bekbau wrote.
While Russia may be a potential location for Kazakh cryptocurrency miners because of its proximity, the government’s demeanor towards cryptocurrency investment is unwelcoming. The Russian authorities have always held that cryptocurrency could be used for money laundering and terrorism financing criminals and its central bank is looking to ban cryptocurrency according to reports. The country’s stance could extend to cryptocurrency mining in the future.
For others, it is not just about the cost of relocating to the United States, but how much more the country which already has the highest number of cryptocurrency miners in the world can take. “What’s concerning is that previous congestion and bottlenecks around hosting capacity (readily available space to plug machines into) will be squeezed that much tighter,” Kevin Zhang, vice president of Foundry, a Digital Currency Group was quoted to have said on CNBC.
A mass exodus of miners from Kazakhstan would not only lead to a fall in the country’s 18.1 percent share of global cryptocurrency mining, according to the Cambridge Centre for Alternative Finance, the money it would make when it imposes extra taxes this year could be constrained. It also threatens jobs.
“Kazakhstan will be mining harbour in long term. There is a huge potential for building new power generation. Both traditional energy sources and renewables. As long as country has political stability and can attract foreign capital,” Bekbau said.