Kazakhstan’s power grid is feeling the strain, as the booming crypto-mining industry in the country is putting a significant strain on its infrastructure. Coal-fired power plants mainly power Kazakhstan’s energy grid.
A Double-Edged Sword
The cryptocurrency mining industry is flourishing in Kazakhstan, thanks to cheap power, which has attracted a large number of miners from China after the Chinese crackdown on crypto. The central-Asian nation has become the second-biggest Bitcoin mining hub after the United States over the past few months.
However, the downside to the surge in mining activity has put unprecedented strain on the power grid in the country, with Kazakhstan now struggling to meet the increased power demand.
Government Mulls Regulations
As a result of the power crisis, the government in Kazakhstan is now mulling how it can regulate and tax the largely foreign-owned and generally underground crypto-mining industry. The problem is so pronounced that the country has been forced to import power while rationing the domestic power supply.
To add to the problem, the mining farms are powered by old coal plants and present a challenge to the government as it tries to decarbonize the country’s economy. While mining is seen as an easy way to make a quick fortune, governments are increasingly concerned that private cryptocurrencies could undermine the financial system while promoting financial crime and putting investors at risk.
An Imminent Crackdown?
The government of Kazakhstan is also planning a crackdown on unregistered miners, which it believes are consuming twice the amount of power than miners who are officially registered. The Deputy Energy Minister Murat Zhurebekov commented,
“I think we will have the directive (limiting power to unregistered miners) issued before the end of this year because this issue cannot be delayed any longer,”
However, he did not elaborate on how the government planned on locating the illegal mining operations, which are usually based in obscure locations.
According to Kazakhstan’s Power Ministry, illegal miners could be consuming up to 1.2 GWt of power, which puts the consumption by miners at 8% of the total power generation capacity when combined with registered miners. While there is consensus building among miners to register themselves, they are unsure about how heavily they may be taxed.
A miner speaking on the condition of anonymity stated,
“The tax that the government plans to introduce is something that miners can afford to pay. But it is unclear what demands the government may put up further on.”
A Heavy Environmental Impact
Kazakhstan’s power tariffs are state-regulated and are kept artificially low. The government is not keen on increasing these prices as it battles inflation. Many economists are of the opinion that the country needs price reform in its energy sector. The regional economist at the European Bank for Reconstruction and Development stated,
“A price reform is definitely necessary. What we have in Kazakhstan is heavy reliance on coal with very low prices ... But this creates very big problems in meeting the obligations that Kazakhstan has taken on with regards to making the economy greener.”
Meanwhile, crypto-miners have proposed that the government allow them to invest in renewable energy, letting the industry offset taxes.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.