Kazakhstan Blames Cryptocurrency Mining for Nationwide Energy Shortages

An Israeli holds a visual representation of the digital cryptocurrency Bitcoin, at the "Bitcoin Change" shop in the Israeli city of Tel Aviv on January 17, 2018. - At the end of 2017 Israel Securities Authority said it was moving to ban trading in cryptocurrency-based companies on the Tel Aviv …
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Kazakhstan has blamed the country’s booming crypto mining industry on nationwide energy shortages and recently threatened to crack down on the practice with new regulations and higher taxes.

Kazakhstan recently became the world’s second-largest producer of Bitcoin, a form of cryptocurrency, according to the Cambridge Centre for Alternative Finance. Bitcoin mining has flourished in Kazakhstan over the past six months thanks, in large part, to Beijing. The Chinese Communist Party (CCP) in May ordered all crypto-related operations within China to shut down. The CCP mandated the industry’s effective demise within China after sensing the threat it posed to the Communist Party’s control of China’s financial system.

Responding to the crypto crackdown, China-based miners of Bitcoin and other cryptocurrencies soon fled to neighboring Kazakhstan, a Central Asian state with cheap electricity. Bitcoin and other digital tokens are mined through a complex computing process that requires substantial amounts of energy. Hordes of crypto miners have settled in Kazakhstan since June, many of them unregulated. The economic migration has coincided with a spate of power shortages across Kazakhstan which the country’s government has alleged are partly caused by unregulated, or “grey,” Bitcoin miners.

“Since the beginning of the year [2021], electricity consumption has sharply increased — up to 8 percent, while the norm is 1-2 percent. We are talking about 1000 – 1200 MW of electricity,” Kazakhstan’s Deputy Energy Minister, Murat Zhurebekov said on November 5.

“Yes, it has to do with [crypto] mining companies,” he affirmed.

“We have officially registered 50 [cryptocurrency mining companies], the rest work in the shadows: These ‘grey’ miners have provoked the deficit,” Zhurebekov added.

“The 8 percent increase in consumption is largely due to mining data centers operating in the country. The main suppliers of electricity for mining data centers are coal and gas power plants,” Kazakhstan’s Ministry of Energy told the Diplomat on November 19.

Kazakhstan’s latest energy statistics have prompted the nation’s government to threaten its own crackdown on crypto mining, likely through higher energy taxes. Kazakhstan’s government already passed amendments to the nation’s tax code in June that “provide for a tax of 1 tenge ($0.0023) per kilowatt-hour,” Reuters noted on November 11, adding “there are also proposals to make miners pay more for energy.”

Kazakhstan’s government has said it plans to impose unspecified regulations on “grey” miners in the coming months. The country’s energy ministry says it estimates unregulated mining companies may be consuming twice as much electricity as officially registered, or “white,” crypto miners.

“The ministry says ‘grey’ mining may be consuming up to 1.2 GWt of power, which together with ‘white’ miners’ 600 MWt comes up to about 8 percent of Kazakhstan’s total generation capacity,” according to Reuters.

“I think we will have the directive (limiting power to unregistered miners) issued before the end of this year, because this issue cannot be delayed any longer,” Zhurebekov said earlier this month.

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