- Electricity supply issues make it difficult for bitcoin miners to work in Kazakhstan.
- The recent civil unrest has also led to internet outages across the country, further hurting the bitcoin mining capacity in the country.
- Some miners are starting to leave Kazakhstan, looking to the United States as a more stable place to continue mining operations.
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Energy crisis and civil unrest The viability of bitcoin mining is threatened in Kazakhstan, just months after the country became the second largest producer of the world’s best digital currency.
Kazakhstani Bitcoin miners are facing a problem
It appears that the Bitcoin boom in Kazakhstan may be short-lived.
During the final months of 2021, the Central Asian country struggled to keep electricity flowing after a rapid increase in demand from bitcoin mining operations. Over the course of the winter months, Kazakhstan faced constant blackouts, which prompted the country’s national grid operator, KEGOC, to ration power to mining facilities during peak hours of use.
Although Kazakhstan previously welcomed bitcoin miners fleeing increased regulatory oversight (and an eventual blanket ban) in China, few of them are registered with the government, which in turn has contributed to the country’s electricity supply problems. Kazakh officials have reported that these so-called “gray miners” are consuming an estimated 1,200 megawatts of electricity and have brought Kazakhstan’s power grid to breaking point. According to data from the Cambridge Bitcoin Electricity Consumption Index, Kazakhstan currently hosts 18.1% of the entire Bitcoin network hash rate.
An unstable power grid, along with pandemic-related inflation and rising fuel prices, led to protests over the weekend in Almaty, Kazakhstan’s largest city. The unrest reached its climax on Tuesday, turning into violence as riot police deployed tear gas and stun grenades to quell the protests. By Wednesday morning, Kazakh President Kassym-Jomart Tokayev stripped his predecessor Nursultan Nazarbayev of his role as head of the country’s Security Council in an attempt to put an end to the protests, but to no avail.
In response to the civil unrest, the Kazakh government began limiting internet access. According to the Internet watchdog netblocksThe country is now in the midst of a nationwide internet blackout after a day of mobile internet disruptions and partial restrictions. The downtime is likely to affect mining operations more severely than energy rationing. Without internet access, miners cannot function instead of operating at limited capacity under power rationing. While the internet outage only started early Wednesday, it could have a significant impact on the country’s mining operations if it continues.
Mining companies currently located in Kazakhstan include BIT Mining, which operates several sites across the country. Canaan, the Nasdaq-listed company responsible for the ubiquitous ASIC mining rig, also announced plans to expand its operations in the country this week.
Before the recent power outage, the ongoing electricity crisis was already starting to affect bitcoin miners. One Kazakh mining company, Xive, was forced to shut down more than 2,500 miners in November due to the energy crisis. The company’s co-founder, Deidar Bikbau, tweet it That Xive is looking to move to the US, describing a potential move as his “American dream”. On December 2, BitFuFu, a hashrate standardization platform backed by Bitmain, announced that it was giving up its mining machines in Kazakhstan to buy a new batch in the United States due to electricity rationing.
If more Kazakh miners follow Xive and BitFuFu, the country could witness a mass exodus similar to that experienced in China during last summer’s Chinese crypto crackdown. As the Chinese authorities systematically shut down mining operations across the country, the total Bitcoin network hash rate has declined, reaching a low of 52% from an all-time high in late June.
Prior to China’s crackdown, the country was responsible for about 34% of Bitcoin’s hash rate. While it is unlikely that 18% of Kazakhstan’s offline shutdown will cause the same magnitude as when miners left China, it still stands to significantly reduce the overall network hash rate in the short term.
As bitcoin miners are in trouble all over the world, the United States is responsible for a higher proportion of cryptocurrency production globally. After overtaking China in October last year, the US now hosts 35.4% of all active Bitcoin miners. If Kazakhstan’s energy crisis and civil unrest continue, America may be ready to attract a larger slice of the Bitcoin network in the future.
Disclosure: At the time of writing this feature, the author owns ETH and several other cryptocurrencies.
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