Kazakhstan and Bitcoin: How Is the First Crypto Doing There?
Kazakhstan has long been on the radar of all wannabe-miners. And even though mining has become less profitable, there’s still a lot going on in the frozen steppes of Northern Kazakhstan and in the country in general. In September 2021, China banned all cryptocurrency-related activity, and this reshaped the mining industry. Miners scrambled into crypto-friendly Kazakhstan, propelling the country into the world’s second-biggest Bitcoin production base, by one estimate. Among the most famous complexes was BTC KZ, a company whose sprawling Ekibastuz facility powers a globe-spanning operation, serving clients as far away as Dubai and Reykjavik. After the Chinese ban the relationship between Kazakhstan and Bitcoin has become a strong bond. So how are cryptocurrencies doing in Kazakhstan now?
Bitcoin Mining in Kazakhstan in 2019-2021
Kazakhstan’s crypto industry opened up after a crash in the value of Bitcoin over late 2019. Though cryptocurrency isn’t recognized as legal tender, miners’ business was encouraged; in his 2020 state-of-the-nation address, President Kassym-Jomart Tokayev urged the country to attract $1.2 billion worth of crypto infrastructure investment within five years. This, he added, had to be done before other countries beat them to it. Attracted by cheap electricity and a lack of regulation, the industry in Kazakhstan began to flourish.
However, things changed in late 2021. The government web shutdowns during an explosion of unrest in the country, the world’s second-largest center for mining, caused bitcoin’s global computing power to drop around 13% as data centers used to produce the cryptocurrency were knocked offline. Power blackouts grew more frequent, and peak electricity demand was shown to have jumped in the first three quarters, roughly 1,500 megawatts, which constitutes 7% of the yearly estimates.
As a result, the country’s Ministry of Energy blamed this rise on the developing crypto industry. The real cause of the increasing blackouts, according to market analysts, is not the miners. The problem can be attributed to the fact that Kazakhstan’s power infrastructure hasn’t been renovated since the collapse of the USSR. Moreover, most of the repair contracts tend to go to companies linked to lower levels of government, even if they’re procured via an open tender. Despite these reasons, in October, the Kazakhstan government announced it would cut off the miners’ power supply.
Year 2021 and Onwards
In addition to blaming the miners, the state also decided to tax the booming crypto industry. From January 1, 2022 it imposed a tax of one tenge (0.20 cents) per kilowatt-hour on registered miners. By February, the government was already pushing a proposal to increase it tenfold to 10 tenge per kWh. The same month, digital development minister, Bağdat Musin, labeled unregistered mining an ‘economic crime.’
Officials claimed that miners accounted for the entire electricity demand increase and more: about 700 MW of power was consumed by those registered with the government. However, this has not been confirmed by other sources as miners are generally difficult to trace. In February, the Almaty City Department for Economic Investigations was given the near-impossible task of tracking down illegal miners.
Despite these actions, in June it was revealed that Kazakhstan had received 652 million tenges, or $1.5 million, from the illegally-operated crypto mining industry in the country. Money has been collected through a surcharge newly levied on the electricity used by the secretive crypto-mining firms. In October 2022, the Audit Committee of Kazakhstan noted that poor oversight by the Ministry of Digital Development, Innovation, and Aerospace Industry has led to crypto-miners turning a government-backed technopark, the Astana Hub, into a financial ‘offshore platform.’
As a result of the government’s actions, Kazakhstan crypto mining companies and individual miners fled again, this time leaving the country and relocating. At the end of 2021, BitFuFu, a mining company backed by Chinese mining machine giant Bitmain, decided to abandon an estimated 80,000 mining machines. The company planned to start from scratch in the U.S. At the moment, Kazakhstan is still on their map, but will this be there for long?
Kazakhstan Crypto: A Wind of Change
As the military conflict in Ukraine continued to deepen and Russia started calling to active duty its citizens, Russians started fleeing to Kazakhstan. As a result, in September 2022, the country’s government claimed that it’s ready to legalize a mechanism for converting cryptocurrencies to cash if there is demand. This comes at a time when Russia is looking to bolster Kazakhstan’s energy demands in an amendment of the partnership between the two nations. Per the report by a media platform RBC, the Russian government has demanded a modification of the binational energy agreements between the two bordered countries. This development follows the Russian government’s order on the matter.
Speaking at the international forum Digital Bridge 2022, the country’s president Kassym-Jomart Tokayev emphasized that Kazakhstan aims to become an international leader in the field of crypto. He noted that the government of Kazakhstan has drafted amendments in national law to pilot a mechanism for converting crypto at the Astana International Financial Centre.
The country’s president reportedly visited a joint booth of the major local lender Eurasian Bank and the Intebix crypto exchange at the Digital Bridge 2022 event. According to local reports, the Eurasian Bank and Intebix announced that they jointly completed the bank’s first regulated crypto purchase for fiat. The precedent has marked a major milestone in Kazakhstan’s crypto adoption, allowing the Kazakh people to legally buy crypto for the national currency tenge. Furthermore, the country intends to become a leader in the digital asset ecosystem if its pilot launch is successful. The pilot is expected to be in a test phase until the end of 2022 as the nation-state continues to study its demand and security.
In September, Kazakhstan’s first cryptocurrency purchase with its local currency, the tenge, took place as the country considers ‘full legal recognition’ of the asset class. This comes as a pleasant surprise for those who lost all hope in a boost in the crypto industry in Kazakhstan.
In the beginning of October, the Majlis of Kazakhstan (the lower house of the country’s legislature) approved five new crypto bills, which indicated how quickly the new rules are moving forward. These were developed in pursuance of instructions from the country’s president on curbing problems related to crypto mining. Although the bills are still at the first stages of the legislative process, it’s most likely that they will pass into law.
Things are looking bright for crypto exchanges in Kazakhstan. At the beginning of October 2022, the world’s largest cryptocurrency exchange Binance got a license to operate in Kazakhstan. The license from the Astana Financial Services Authority (AFSA) will enable Binance to have the status of a regulated platform that can operate as a digital asset and custody services provider at the Astana International Financial Center.
Additionally, Binance has agreed to support Kazakhstan in ensuring the safe development of the country’s crypto market. The trading platform and Kazakhstan’s financial regulators intend to inform each other about cases involving the use of digital assets for illicit purposes. The agreement follows the signing of another Memorandum of Understanding with Kazakhstan’s Ministry of Digital Development and Innovation in May, under which Binance will advise the government in Nur-Sultan on crypto regulations.
Considering the latest news from Kazakhstan, it seems that the country has once again turned its attention to propelling the crypto industry. For now, we’ll just have to wait for the new legislation to pass into law. This turn of events is especially welcome amidst all the turbulence in the cryptocurrency field and the overall crypto market recession.
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