News - The rise and fall of the mining stronghold of Kazakhstan

By Mike Hesp

The rise and fall of the mining stronghold of Kazakhstan

Bitcoin (BTC)
Mining

After China kicked cryptominers out of the country, many settled in neighboring Kazakhstan. Today, a fraction of Kazakhstan's once thriving mining industry remains. What happened?

If the Bitcoin mining facility of Enegix is running at full capacity, it consumes 150 megawatts - five times as much as the neighboring city of Ekibastus at its peak. The key word is "when," because the plant in northeastern Kazakhstan has not been running at full capacity for months. The gold rush that China's neighbor experienced when the People's Republic declared war on the crypto world and also on digital miners of cryptocurrencies has subsided.

But while much of the newcomers of the time have since moved on, a fraction continue to fight for their right to exist. Their hopes are threefold: Electricity must become cheaper, laws must become friendlier and the crypto market must awaken from its hibernation. But can this succeed? And how?

Kazakhstan as Bitcoin mining stronghold

Back in 2017, the first Bitcoin mining companies set up camp in Kazakhstan because, on paper, the country offers the perfect conditions: Inexhaustible coal reserves and an industry that, since the fall of the Soviet Union, does not need nearly as much energy as it used to, provided enormously cheap electricity. At the same time, the cold climate and abandoned warehouses offered ASICs ideal locations. Then, when the government in Kazakhstan's capital Astana launched the Astana Hub - a startup incubator that offered tax breaks to tech companies - the country quickly became a destination for cryptominers.

By November 2021 at the latest, Kazakhstan had fought its way up to second place in the global hashrate rankings, after China's exodus of miners of digital assets in the summer of that year caused a wholesale ban on mining. BIT Mining, for example, moved from China to Kazakhstan in June 2021, and Canaan announced a similar move in the same month. And it soon became clear that even in Kazakhstan, the seemingly inexhaustible flow would eventually run out.

Bitcoin mining companies: a parasitic industry?

In the same year, the consumption of the countless mining facilities rose to seven percent of the country's total consumption - abundance turned into undersupply, power outages became more frequent, the mood in the country tilted. And the Kazakh government reacted: as early as September 2021, the state-owned KEGOC reduced the power supply to mining farms, leading mining hosts BitFuFu and Xive, for example, to move - to the US. Then last January, a new tax law went into effect, partly in response to the riots that broke out in Kazakhstan, some of which were put down by Russian military forces and killed 225 people.

Increased taxes further reduced the profits of the remaining mining companies and caused more companies to leave. When the Bitcoin price plummeted, the fate of a once-thriving industry seemed sealed. For Pete Howson, a mining expert at Northumbria University, this is a natural process within the industry. He told to MIT Technology Review: "Mining companies go where there is a willing host until they have everything they need, and then they move on again ... it's a parasitic industry."

Yet to this day, a fraction of Kazakhstan's once thriving mining industry remains. Driven mostly by the hope that the tide will turn in their favor.

Hoping for the bull market

One of the biggest problems of the mining industry in Kazakhstan, which also prevailed before the problems already mentioned, is already being addressed: Last September, Kazakh President Qassym Shomart Toqayev promised that cryptocurrencies would soon receive "full legal recognition." So far, it is not possible to convert Bitcoin and Co. into fiat money in Kazakhstan. Therefore, companies based in the country have always served as hosts for international companies - keeping much of the profits for themselves. If that changes now, it could be an important first step for a mining renaissance in the country.

At the same time, the government has set up a regulatory hub in the capital's international economic center to give crypto companies a legal start in the Central Asian state's economy.

Another source of hope is the price of Bitcoin. One miner told MIT Technology Review that a Bitcoin would have to fetch about $40,000 to be worthwhile. At the current rate, miners are making a loss. The continuing declining market has already ruined many a company financially - but companies like Enegix are holding out and even planning to expand their capacity further: an additional 50 megawatts are planned, they say, even though the plant may not currently run at full capacity. Hope springs eternal.

Download the Anycoin App

Finally, a crypto app for everyone!

Check it out