Bitcoin mining industry in Kazakhstan shuts down due to deadly protests

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As the Central Asian country of Kazakhstan plunged into chaos this week, the Internet shutdown hit the world’s second-largest Bitcoin mining center, which was another blow to miners seeking permanent stable homes.

Less than a year ago, China expelled all cryptocurrency miners, many of whom sought asylum in neighboring Kazakhstan. But a few months after these cryptocurrency immigrants opened stores, protests against soaring fuel prices turned into the country’s worst unrest in decades, putting cryptocurrency miners in trouble.

After disbanding the government and requesting assistance from Russian paratroopers to curb the deadly violence, Kazakhstan’s President Kassim-Jomat Tokayev ordered the country’s telecommunications providers to shut down Internet services. According to Kevin Zhang of the digital currency company Foundry, the shutdown caused approximately 15% of bitcoin miners worldwide to go offline, and the company helped bring more than $400 million in mining equipment into North America.

As Kazakh miner Didar Bekbau said, “There is no internet, so there is no mining.”

Bitcoin fell below $43,000 in Thursday’s trading for the first time since September, and at one point fell more than 8%.

On January 5, 2022, Almaty, Kazakhstan, law enforcement officers from Kazakhstan blocked a street during a protest caused by rising fuel prices.

Pavel Mikhayev | Reuters

Internet services in the country have since been restored, but the entire incident revealed two important facts about the state of the Bitcoin mining industry. On the one hand, the Bitcoin network is resilient, it will not skip a beat, even if a large part of the miners accidentally go offline. Second, the United States may soon see an influx of new crypto miners, who hope to avoid future disruptions.

The question now is whether the United States, which surpassed China to become the world’s largest Bitcoin mining center in 2021, has room to accept more miners.

“The worry is that the previous congestion and bottlenecks surrounding colocation capacity (the available space that can be inserted into the machine) will be compressed even tighter,” Zhang explained.

“Colocation capacity is facing tremendous pressure and demand,” he said.

Bitcoin mining in Kazakhstan

When Beijing expelled all Bitcoin miners in May 2021, Kazakhstan seemed to be a logical destination. Apart from being next door, the country is also a major energy producer.

Mining is an energy-intensive computing process used to create new coins and maintain all transaction logs. Kazakhstan has coal mines that provide cheap and abundant energy supplies. This is a major incentive for miners competing in low-margin industries, as their only variable cost is usually energy.

This also helps the Kazakh government to take a more relaxed attitude towards construction, which is beneficial to miners who need to build physical facilities in a short period of time.

Bekbau runs Xive, a company that provides hosting services for international miners and sells specialized equipment needed for mining. In the past few months, he has received countless visits from Chinese miners who are looking for a safe place to plug in their equipment.

Kazakhstan’s share of the global bitcoin mining market is second only to the United States, accounting for 18.1% of all cryptocurrency mining. Cambridge Alternative Finance Center.

But the government is not entirely excited about its booming crypto mining industry.

For months, Kazakh lawmakers have been enacting new rules to prevent mining, including a law that will impose additional taxes on crypto miners starting in 2022. Experts predict that this move will significantly change people’s motivation to deploy capital in Kazakhstan.

Nic Carter, co-founder of Castle Island Ventures, said: “The Internet outage occurred after the country actually banned new mining activities, so the miners are already well aware of the political risks there.”

“These bans only emphasize why miners are increasingly placing themselves in politically stable jurisdictions,” Carter continued.

Several mining experts also told CNBC that they believe Kazakhstan has always intended to become a temporary transit point for long-term westward migration.

Alex Brammer of Luxor Mining is a cryptocurrency pool built for senior miners. He said that large miners will bring their old equipment to Kazakhstan in the short term.

“But as the life of the older generation of machines ends, these companies may deploy new machines to jurisdictions that are more stable, more energy efficient and renewable,” Brammer said.

The United States has quickly become a mecca for crypto mining, partly because it has some of the cheapest energy sources on earth, many of which are often renewable.

If miners do head westward, this may herald a greater debate around Bitcoin’s carbon footprint.

Carter pointed out that Kazakhstan’s energy is carbon-intensive, so just like China’s ban, prolonged power outages in Central Asian countries may have a net impact on the further decarbonization of Bitcoin mining.

But not everyone believes that Kazakhstan is about to see a wave of cryptocurrency mining.

Alan Dorjiyev is the chairman of the Kazakhstan National Blockchain and Data Center Industry Association, whose members are mainly composed of mining companies. Dorjiyev told CNBC that after talking with mine owners across the country, he believes that most data centers are safe because they are located in areas where there is no protest.

Bekbau also remains optimistic, saying on Twitter that he hopes next week, “Everything will be fine.”

Regardless of whether the miners moved out of Central Asia, industry experts told CNBC that the biggest takeaway from this entire ordeal is that the Bitcoin mining industry has once again withstood another stress test, with little drama.

As we have seen in China, when a country proves that its mining of Bitcoin is unstable, the country’s miners will move to other places,” said Brandon Arvanaghi, a Bitcoin mining engineer, who now runs Meow, a company that enables Finance companies participating in the crypto market.

“This is how the Bitcoin network has become more resilient over time. Miners have moved to the most advantageous jurisdictions, resulting in fewer and fewer interruptions.”

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