Kazakhstan bitcoin mining shuts down amid fatal protests

When Beijing kicked out all its bitcoin miners in May 2021, Kazakhstan seemed like a logical destination. Beyond the fact that it was right next door, the country is also a major energy producer.

Mining is the energy-intensive computing process used to create new coins and maintain a log of all transactions. Kazakhstan is home to coal mines that provide a cheap and abundant supply of energy, which is a major incentive to miners who compete in a low-margin industry where their only variable cost is typically energy.

It also helps that the Kazakh government typically has a more lax attitude about building, which is good for for miners who need to construct physical installations in a short period of time. 

Bekbau runs Xive, a company that provides hosting services to international miners and sells the specialized equipment needed for mining. In the last several months, he’s fielded countless inbounds from Chinese miners looking for a safe place to plug in their gear.

Kazakhstan is just behind the U.S. in terms of its share of the global bitcoin mining market, with 18.1% of all crypto mining, according to the Cambridge Centre for Alternative Finance.

But the government hasn’t exactly been thrilled about its burgeoning crypto mining industry.

For months, Kazakh lawmakers have been setting down new rules to discourage mining, including a law that will introduce extra taxes for crypto miners starting in 2022. Experts expect the move will significantly change the incentives for people looking to deploy capital inside Kazakhstan.

“The internet outage comes at the heels of efforts to impose a de facto ban on new mining in the country, so miners will have been well aware of the political risk there,” said Nic Carter, co-founder of Castle Island Ventures.

“These bans just underscore why miners are increasingly locating themselves in politically stable jurisdictions,” continued Carter.

Several mining experts also tell CNBC they think that Kazakhstan was always intended to be a temporary stopover on a longer migration west.

Alex Brammer of Luxor Mining, a cryptocurrency pool built for advanced miners, said that large miners were going to Kazakhstan in the short-term with older equipment.

“But as older-generation machines reach the end of their service lives, those companies will likely deploy new machines into more stable and energy efficient and renewable jurisdictions,” Brammer said.

The U.S. has fast become a mecca for crypto mining, in part because it is home to some of the cheapest sources of energy on the planet, many of which tend to be renewable.

If miners do make their way west, it could bode well for the larger debate around bitcoin’s carbon footprint.

Carter points out that Kazakh energy is carbon-intensive, so just like the Chinese ban, a prolonged outage in the Central Asian country would likely have the net effect of further decarbonizing bitcoin mining.

But not all are convinced of an imminent crypto mining exodus from Kazakhstan.

Alan Dorjiyev is president of the National Association of Blockchain and Data Centers Industry in Kazakhstan, whose membership is mostly comprised of mining companies. Dorjiyev tells CNBC that after speaking to owners of mining farms across the country, it is his understanding that most data centers are safe, because they are located in regions where there are no protests.

Bekbau also remains optimistic, tweeting that he hopes by next week, “everything will be okay.”

Whether miners make the move out of Central Asia or not, industry experts tell CNBC that the biggest takeaway of this entire ordeal is the fact that bitcoin mining has, yet, again, survived another stress test with little drama.

As we saw with China, when a country demonstrates it’s unstable for mining bitcoin, miners in that country will move elsewhere,” said bitcoin mining engineer Brandon Arvanaghi, who now runs Meow, a company that enables corporate treasury participation in crypto markets.

“This is how the bitcoin network gets more resilient over time. Miners migrate towards the most favorable jurisdictions, making disruptions less and less frequent.”

This content was originally published here.

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