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Why crypto miners are fleeing Kazakhstan

Why crypto miners are fleeing Kazakhstan

How it started

When China banned cryptocurrencies and mining activities in May 2021, a Central Asian country, Kazakhstan, received the mining companies with open arms and broad smiles.

According to Financial Times, around 87,849 mining rigs were brought to Kazakhstan from China following the ban.

Kazakhstan borders Russia in the north, China in the east, and Kyrgyzstan, Uzbekistan, and Turkmenistan in the south. The capital is Nur-Sultan, formerly known as Astana.

According to Wikipedia, Kazakhstan is the world’s largest landlocked country, the world’s largest Muslim-majority country by land area, and the ninth-largest country in the world. It has a population of 18.8 million and one of the lowest population densities globally.

Bitcoin mining and electrical energy

When the country openly welcomed crypto miners fleeing from China and sought to provide an enabling environment for them, they envisaged a future where the government would make extra income from these mining activities.

According to a report by CoinTelegraph, the government expected to make $1.5 billion in revenue in five years from mining activities.

However, it did not consider the toll these activities would take on the country’s national grid.

Crypto mining involves using supercomputers to solve complex problems called cryptographic equations on the Blockchain.

Once a particular cryptographic equation is solved, a new block is added to the blockchain, and the miners are rewarded with coins from that blockchain.

For example, If you create a block in the Bitcoin blockchain, you would get bitcoins as a reward; if you create one on the Ethereum blockchain, you will get Ether as a reward.

The supercomputers which enable the creation of new blocks require a lot of power to function optimally, and mining companies usually have thousands of them working simultaneously.

How Kazakhstan’s national grid is handling crypto mining

Kazakhstan’s electric grid seems to be imploding from within because of the massive increase in mining activity in the country.

The Central Asian country’s share of the global hashrate — the amount of computer processing power spent mining Bitcoin — has approximately doubled.

It is now second only to the United States, according to data from the Cambridge Centre for Alternative Finance.

The influx of mining activities in Kazakhstan has exponentially increased the demand for the country’s electricity.

Caption: Kazakhstan’s national grid is struggling due to the power demand of mining activities.

In the last two months, six regions in the country have faced multiple blackouts, an unusual occurrence for a country that used to produce more electricity than it needed.

Three major plants in the Northern part of the country have also been forced to shut down due to the drag from crypto miners.

According to the Financial Times, the country’s electricity demand had been growing at a stable rate of 1%-2% annually until a couple of months ago.

In 2021 only, demand has grown 8%, which the minister said was due to crypto mining.

Kazakhstan’s Solution

According to Business Insider, the national grid operator, Kazakhstan Electricity Grid Operating Company, KEGOC, has recently said that it would start rationing power to the country’s 50 registered miners, which consume around 600 megawatts (MW).

As a more short-term solution, the country has started cutting off the power supply to some miners, especially those in the southern part of the country, where power plants are scarce. Mining companies have complained of losing power for several days.

The company has also contacted Russia to help meet its rising energy demands. Russia’s Deputy Prime Minister, Alexander Novak, said that Russian companies would supply power to Kazakhstan “based on commercial terms.”

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According to Coindesk, the country’s Ministry of Energy had also proposed a bill that would enforce limits for all newly licensed cryptocurrency mines to one megawatt (MW) per mine and 100MW for the entire country, but they rescinded and promised not to limit the power for duly registered mines.

How miners are reacting

Some miners have voiced complaints that the power shortages significantly affect their business.

One miner told Financial Times that the power cuts are common and unexpected, and they do not get a timeframe as to when the power will return.

The power issues have caused crypto miners to pack up and relocate to other countries, including the US.

Xive.io, a mining company with mining farms in the south, has shut down and is relocating from the country.

Xive’s Co-founder, Didar Bekbau, told CoinDesk, “Xive is preparing a new site for its over 2,500 machines, but it is clear that mining in south Kazakhstan is not possible anymore.

Other miners in South Kazakhstan are also looking for hosting sites for moving their machines but there are “no options” left in the country. Some have found hosts for their mines in Russia and the U.S.,” he added.

With winter fast approaching, Kazakhstan hopes to stabilise their electricity supply as soon as possible.

Retail demand will definitely increase as the country’s average temperature drops as low as 9 degrees during winter.

The country’s electricity woes make us question the viability of Bitcoin mining and the need to adopt renewable energy.

Bitcoin mining still requires an awful lot of energy, and in nations where this demand can be met, the cost can be daunting.

A permanent solution needs to be found, else mainstream adoption is still but a pipe dream.

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