Political crisis in Kazakhstan weighs on cryptocurrency miners

Kazakhstan has been going through a serious political crisis since the beginning of 2022 with a heavy impact on the price of Bitcoin. Since China, representing 60% to 70% of the mining network, banned the activity in June, Kazakhstan has become the second largest host country for miners.

The refuge of Chinese miners

Kazakstan had everything to attract cryptocurrency miners thrown out by China, a cold climate, low-cost energy and many vacant warehouses. According to a count of FinancialTimes, 87,849 mining machines have arrived in the former Soviet republic since the Chinese decision.

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Installation was not without difficulty. Mining is an energy-intensive activity that has destabilized the country’s aging network. To avoid power outages, power supply rationing was announced for cryptocurrency miners in December 2021. According to the Kazakh government, mining takes up to 8% of the country’s energy capacity.

Discussions for the implementation of new regulations were to iron out these difficulties, with a new legal framework and the hunt for undeclared mining. Asked by Wired, Alan Dorjiyev, president of the National Association of the Blockchain and Data Center Industry of Kazakhstan, believes that this new framework would bring some stability to the sector.

The country’s most serious political crisis for 30 years

It was without counting on the crisis which has been agitating Kazakhstan since the beginning of January. A rise in the price of fuel in a country that is nevertheless rich in oil has provoked a vast and violent movement of popular anger, repressed in blood by the authorities, supported by Russia. If the crisis is coming to an end and the Russian troops are beginning to leave, Kazakhstan remains shaken by one of the most serious situations that the country has had to go through for thirty years.

Power cuts have multiplied, the Internet was completely disconnected from January 5 to 10, with, since then, a return of the most timid connection. The miners had to increase the security of their facilities, even though the troubles were relatively far away.

Moreover, their activity has been greatly disrupted. Jaran Mellerud, an analyst at Arcane Research, which specializes in cryptocurrency analysis, estimated for Wired that mine closures cost Kazakh miners $7.2 million. Bitcoin has lost 12% of its throughput since the events began.

The damage could have consequences beyond the crisis itself. Power cuts can cause devices to freeze quickly given the local climate, causing them to be permanently damaged. The new law aimed at stabilizing the supply of mines is probably postponed indefinitely by a government with other concerns.

After Kazakhstan, where to take refuge?

According to information collected by Wired, the crisis in Kazakhstan has not, for the moment, led to an exodus of minors. If some put forward their optimism about the future of the country, many simply do not have the means to leave.

The main potential host countries, Russia, Canada, the United States already lack the infrastructure to accommodate all minors, not to mention the difficulties of undertaking a move these days.

The first mining country in the world, the United States, rhymes with at least two weeks of travel during which the equipment could be damaged. The profitability of the departure also raises questions. Kazakhstan’s export tax is equivalent to 12% of the market value of a device. The customs barriers put in place by Donald Trump on Chinese equipment, the original market for many expatriate miners, are set at 27.6%.

Kazakhstan may well lose its image as a land of plenty for miners after this month of January 2022. Cryptocurrency specialists believe that the country will no longer welcome as much investment from the sector in the future. The machines could continue to run until they reach retirement age, without being replaced. It is still necessary to find a new state meeting the necessary conditions to welcome the extraction of cryptocurrency and ready to pay the very high electricity bill.

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