Central Asian country Kazakhstan will experience a huge increase in fuel costs just after the beginning of 2022, triggering rare protests and riots.
The local government was affected by the pressure of the protest and cut off communications and Internet services. According to NetBlocks network data, from the evening of January 4, 2022, Kazakhstan’s Internet service was severely interrupted, and it developed into a nationwide communication interruption on the afternoon of the 5th. By the early hours of Thursday morning, Kazakhstan was once again caught in a nationwide Internet outage.
Bitcoin mining operations in Kazakhstan are affected. According to data from BTC.com, the total computing power of Bitcoin on January 5 dropped by approximately 14.7% compared to January 1.
According to a tweet by Larry Cermak, vice president of research at TheBlock, after the Internet interruption in Kazakhstan, the significantly affected mining pool was 1Thash, which dropped by 82%; OKExPool’s hashrate dropped by 46.3%, and KucoinPool’s hashrate dropped by 22.7%.
Since China’s withdrawal and closure of Bitcoin mining farms in May 2021, Kazakhstan has gradually become the world’s second largest mining country. According to the Cambridge Bitcoin Electricity Consumption Index (CBECI), the United States has the largest hashrate in the world, accounting for 35.4%, and the second and third places are Kazakhstan and Russia, accounting for 18.1% and 11.23%.
But the direct impact of the rush of mines on Kazakhstan is energy shortages. Since July last year, power has been cut off in various places in Kazakhstan. According to news from the Kazakhstan Legal Network, Murat Zhurebekov, the first deputy minister of the Ministry of Energy of Kazakhstan, stated on November 5, 2021 that Kazakhstan’s electricity consumption in the first 10 months has surged by 8% year-on-year, which is much higher than that of previous years. The normal increase in demand of 1% to 2% is equivalent to the annual power generation capacity of 1,000 to 1,200 megawatts (1 megawatt = 1,000 kilowatts). To obtain the same amount of power generation capacity, it takes 5 years and costs 1 billion to 1.5 billion U.S. dollars. The Ministry of Energy of Kazakhstan believes that the abnormal increase in electricity consumption is due to the large number of Bitcoin mining farms. Currently, there are more than 50 officially registered Bitcoin mines in Kazakhstan, as well as an increasing number of “gray” mines. “Gray” mines are highly mobile, and it is difficult to determine their scale. It is estimated that the total electricity consumption is twice that of legally registered mines. In view of this, the government of Kazakhstan is considering building a nuclear power plant to overcome the power shortage allegedly caused by the booming cryptocurrency mining industry.
Kazakhstan is currently not profiting from the Bitcoin mining business, but the local government was optimistic that in the next five years, cryptocurrency mining is expected to bring Kazakhstan more than 1.5 billion U.S. dollars in economic income and 300 million U.S. dollars in taxes. According to previous news from the “Italic News”, in June 2021, the President of Kazakhstan signed an amendment to the “Tax Code” on the taxation of cryptocurrency mining, which will take effect on January 1, 2022. The new law imposes an additional fee of 1 tenge (1 tenge is approximately US$0.0023) per kilowatt-hour of electricity for cryptocurrency mining.
But it is worth pondering that after the riots in Kazakhstan, whether the miners can be retained is still a question mark.
According to public information, Canaan Technology and Ninth City have deployed mines in Kazakhstan. As of December 31, 2021, Canaan Technology has a total of 10,300 Avalon mining machines in operation in the country. Ninth City also signed an investment clause with KazDigital Ltd., a Kazakh company, and the two parties established a joint venture in Kazakhstan to build a 100MW digital currency mine to deploy the cryptocurrency mining machines of Ninetown and its partners. At present, the degree of impact is geometric and has not yet been replied.
Some mining companies, such as BitFuFu, a cloud computing power company invested by Bitmain, have given up on deploying mines in Kazakhstan. BitFu announced in early December last year that after a few weeks after Kazakhstan imposed power restrictions, BitFu would abandon its mining equipment in Kazakhstan, purchase new mining machines from Bitmain, and install them in the United States.