Kazakhstan quickly became the world's second largest Bitcoin mining producer with the help of Dongfeng in 2021. However, the good times did not last long. After more than a year of power shortages, power outages, and domestic political conflicts that led to Internet service interruptions, its global computing power share plummeted from a peak of 18% to the current level of about 4%.
In particular, with the implementation of Kazakhstan's new "Digital Asset Law" on April 1 this year, the government has fully intervened in the supervision of a large number of "gray" mining companies, which has had a multifaceted impact on the miners. In this issue we will talk about this topic.
Kazakhstan is one of the five "stans" in Central Asia. Among the former Soviet republics, its area is second only to Russia. It has rich oil and gas/coal resources and is an extremely energy-rich superpower.
We all know that the most critical factor for Bitcoin mining is abundant access to cheap electricity. In terms of Kazakhstan’s electricity production structure, 88% is coal and natural gas power generation, 9% is hydropower, and the remaining 3% is renewable energy power generation.
Therefore, Kazakhstan's electricity supply mainly comes from thermal power generation, and most of the power generation is concentrated in a few industrial cities in the northeast. These power generation and transmission centers also attract the largest number of miners, including Karaganda, Pavlodar, Oskman and Ekibastuz.
Kazakhstan’s largest Bitcoin mining farm “Enegix” is located in Ekibastuz, which was a world-famous lignite open-pit mine during the Soviet period. The coal was dug out to generate electricity on site, with a total installed capacity of 5,000 megawatts. The power plant also has the world's tallest chimney (419.7 meters), which is nicknamed the "Lighter".
Since many Bitcoin mines are installed directly on the internal facilities of Kazakhstan's power plants, this undoubtedly reduces the direct power supply to the national power grid. At the same time, the old Soviet-era power system does not have an advanced demand response system and is unable to adapt to sudden changes in demand, resulting in power shortages in some areas during certain periods of time, which has aroused the vigilance and dissatisfaction of the Kazakhstan bureaucracy.
Therefore, the real purpose of the new "Digital Asset Law" introduced by the Kazakhstan government is supervision, but it is actually a crackdown, and by the way, "making money": First, all mining farms operating in Kazakhstan must obtain a license and report miners to the government income for tax purposes.
Secondly, all mines and mining pools operating in Kazakhstan must be registered with the designated Astana International Financial Center (AIFC). Miners need to sell their Bitcoin on designated exchanges, and there are seven licensed exchanges to choose from including Binance. At least 25% of the shares need to be sold currently, at least 50% starting in 2024, and at least 75% starting in 2025.
Secondly, miners' purchase of electricity is strictly regulated and they can only compete for their "surplus" electricity through Kazakhstan's national power system, KOREM.
Finally, a mining-specific electricity tax is levied to set a price floor for electricity, which depends on the price at which miners obtain electricity. The cheaper the electricity price, the higher the tax level.
Although it is currently difficult to determine the scale of the growing number of “grey” mines in Kazakhstan, it is estimated that the total electricity consumption is twice that of legally registered mines. The reality is that power supply has been cut off to some mines due to the need to avoid the limelight.
In the foreseeable future, Kazakhstan’s restrictions on the scale of power access in mines, including power supply restrictions for new “miners”, will be limited to a “lower” level. #BTC
