Crypto Mining Pushing Kazakhstan Energy Grid to the Limit

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In Brief
  • Kazakhstan is struggling to meet its growing energy needs, now that crypto mining is booming in the Central Asian country.

  • Most miners have been drawn by the country’s cheap power or have fled from neighboring China.

  • Meanwhile, members of Kazakhstan’s Senate have just passed legislation bringing anti-money laundering (AML) legislation to crypto platforms.

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Kazakhstan is struggling to meet its growing energy needs, now that crypto mining is booming in the Central Asian country.

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Most miners have been drawn by the country’s cheap power or have fled from neighboring China. This has made the country of 19 million the world’s second-largest bitcoin mining location after the United States, according to the Cambridge Centre for Alternative Finance. 

However, forced to import power and ration domestic supplies, the government is trying to determine how to tax and regulate the industry. Because of struggling with inflation, the government is reluctant to raise the state-regulated artificially low electricity prices, which lies at the root of the problem.

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“A price reform is definitely necessary,” said Eric Livny, a regional economist at the European Bank for Reconstruction and Development. “What we have in Kazakhstan is heavy reliance on coal with very low prices … But this creates very big problems in meeting the obligations that Kazakhstan has taken on with regards to making the economy greener.”

Some miners have suggested the government let their industry offset taxes with investments in renewable energy. “Kazakhstan has an opportunity to develop its weak electric power sector at others’ expense and make some money on top of it,” said blockchain analytics company Blockchair.com engineer Yedige Davletgaliyev.

Cracking down

The Kazakh government also plans to crack down on unregistered “grey” miners, whom it estimates may be using twice as much electricity as registered “white” ones. Deputy Energy Minister Murat Zhurebekov believes the issue cannot be delayed any longer, and said the directive would be issued before the end of the year. 

Although Zhurebekov neglected to explain how authorities planned to locate the “grey” miners, whose farms are often hidden in basements or abandoned factories, their heat signatures could potentially be detected by satellites. 

Some “grey” miners say they are considering going “white”, but are unsure about how heavily they may be taxed. “The tax that the government plans to introduce is something that miners can afford to pay,” said one anonymous “grey” miner. “But it is unclear what demands the government may put up further on.”

AML legislation passed

Meanwhile, members of Kazakhstan’s Senate have just passed legislation bringing anti-money laundering (AML) legislation to crypto platforms. Crypto businesses and service providers will be brought under financial monitoring, and will have to notify respective government bodies about their operations.

The amendments are intended to improve the country’s AML framework as a whole, while also concerning cryptocurrency platforms. Approved by the Senate, the law awaits the assent of the president of Kazakhstan.

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Nick is a data scientist who teaches economics and communication in Budapest, Hungary, where he received a BA in Political Science and Economics and an MSc in Business Analytics from CEU. He has been writing about cryptocurrency and blockchain technology since 2018, and is intrigued by its potential economic and political usage. He can best be described as an optimistic center-left skeptic.

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