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Kazakhstan Government Rakes in $1.5M in Crypto Mining Fees in Q1 2022

2 mins
Updated by Kyle Baird
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In Brief

  • The Kazakhstan government has amassed $1.5 million in mining fees since it imposed a surcharge in January 2022.
  • Some miners have headed for the exit after an internet outage and electricity cuts made the region too risky.
  • A professor from Glasgow believes that Kazakhstan's problem is not with so-called "grey miners" but rather with decaying infrastructure and inability to transport electricity.
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The government of Kazakhstan raised 652 million Kazakhstani tenges ($1.5M) in fees from crypto miners in the first quarter of 2022.

Despite opposition to a new crypto mining tax regime introduced in April, an internet outage, civil unrest, and a highly carbonized electricity grid, the Kazakhstani government has raised $1.5M in fees from crypto companies engaging in mining, says a recent government report.

“The fee is charged for the actual amount of electrical energy consumed in the implementation of activities,” the report reads, breaking down the fees by region. Crypto mining is how miners are rewarded with new coins for helping secure the network, a computationally-intensive process requiring large amounts of electricity.

The top three regions for fee revenues are Nur-Sultan, the country’s capital city and administrative hub, with 277.3 million tenges, West Kazakhstan, with 143.1 million tenges, and Aktobe, the fourth-largest city in Kazakstan, with 48.9 million tenges. Worth noting is that the funds form part of the “republican” or national budget, so the regions receiving the revenues may not be the same as the region housing the crypto mining farms.

Following calls from the vice-minister of energy Murat Zhurebekov to crack down on “grey miners,” those operating outside of the law in Kazakhstan, the government decided to implement a surcharge of 1 tenge ($0.0023) per kWh in 2022, which some mining companies viewed as a way to legitimize operations, and to remove from a “grey list” onto a “white list.”

Some crypto miners take their leave

For some companies, the risks of staying in the country proved too great. Bitfufu closed up shop in December 2021, followed by three other unnamed companies, wrote Wired earlier this year.

But it was by no means an exodus. “We would have expected at least something similar to what happened when they announced the China ban-where our phones are just ringing off the hook. And we haven’t seen that yet out of Kazakhstan,” said Alex Brammer of Luxor Technologies.

Crypto mining may not be the problem

Kazakhstan offered a refuge for displaced miners seeking cheaper power for 87,849 computers after being expelled from China in May 2021. However, it soon found itself unable to cope with the rising demand placed on its largely coal-based electricity infrastructure.

Noticing this, the government vowed to reduce the demand on the grid by switching off electricity to miners and looking to source additional supplies from eastern neighbor Russia’s Inter-RAO, an energy company based in Moscow.

“Certainly, having input of electricity from Russia can address the problem in the short-term, but I think that there is a big discussion to be had about what kind of energy policy Kazakhstan is actually pursuing,” Professor Luca Anceschi from Glasgow University told the Financial Times.

Anceschi believes that attributing grid instability to “grey miners” obscures the real issues of a lack of grid maintenance and an inability to move electricity from the north to the south. The country’s grid operator said it would commence maintenance and repairs.

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David Thomas
David Thomas graduated from the University of Kwa-Zulu Natal in Durban, South Africa, with an Honors degree in electronic engineering. He worked as an engineer for eight years, developing software for industrial processes at South African automation specialist Autotronix (Pty) Ltd., mining control systems for AngloGold Ashanti, and consumer products at Inhep Digital Security, a domestic security company wholly owned by Swedish conglomerate Assa Abloy. He has experience writing software in C,...