Wednesday19 February 2025
nurtoday.com

Digital Gold: How Kazakhstan Missed Its Chance to Develop Mining Opportunities.

And what is currently happening in the industry?
Цифровое золото: почему Казахстан не смог воспользоваться шансом для развития майнинга.

From the summer of 2021 to January 2022, Kazakhstan ranked second in the world for the volume of mined bitcoins. As of January 2022, Kazakhstan accounted for 13.22% of the global mining computational power, trailing only the USA and China in this regard.

Experts predicted that Kazakhstan would become a global powerhouse in bitcoin mining. The prospects indeed seemed bright: the country, as noted by experts including economist Berik Otemurat, could surpass the USA thanks to cheap electricity, low taxes, and the migration of miners from China. However, these predictions were not destined to come true. As Daniyar Mubarakov, president of the Blockchain and Digital Mining Association, states, this sector is currently “not in a very good position,” and Kazakhstan “is not even in the top five countries where this industry is developing.”

— Currently, the total computational power of all miners in Kazakhstan constitutes only 1.4% of the global volume. Ahead of us are the USA, Russia, and other countries where mining is supported at the government level. We definitely do not rank among the top five leading countries. Fortunately, the bitcoin price has risen, and we can still manage to work, but it would be even worse otherwise, — Mubarakov outlined the current situation.

On the origins

Historically, Kazakhstan has been an energy surplus country, meaning that more electricity was generated than consumed. However, due to systemic and accumulated problems in the energy sector, the situation changed in 2021, and Kazakhstan faced an electricity deficit. As claimed by Xive co-founder Didar Bekbau, the electricity shortage arose due to the mass influx of crypto miners to the country following the ban on mining in China. From the second half of 2021, the Kazakh authorities began to restrict miners' electricity consumption. However, this, as the speaker asserts, “did not yield any positive results” for the energy sector: outages continued. In February 2022, the then-head of the Ministry of Energy Bolat Akchulakov openly attributed part of Kazakhstan's energy problems to miners.

Starting in January 2022, the concept of “payment for digital mining” was introduced in Kazakhstan. Several provisions were added to the Tax Code, requiring miners to pay 1-2 tenge in taxes for each kilowatt-hour of energy consumed, depending on the source of electricity — from green or traditional sources, respectively. The payment amount is also influenced by the presence and condition of meters. Against the backdrop of rising prices and increased tax burden, contributions to the budget began to grow, while the number of miners decreased.

— In 2022, we had 195 market participants who paid 2.3 billion tenge in taxes. In 2023, their number decreased to 171, and 4.9 billion tenge was paid to the budget. Over the first two quarters of 2024, 3.5 billion tenge was paid. Over the years, companies have paid 10.7 billion tenge — this is only the tax payment for electricity. Miners have not yet paid corporate income tax because they practically did not operate in 2022-2023 and incurred continuous losses. If we weren’t so heavily discriminated against, the country’s budget could have also benefited from corporate income tax, — insists Mubarakov.

A significant loss

According to Daniyar, in 2024, about 160 bitcoins were mined in Kazakhstan, which is considered a very small volume. Due to the stagnation of the industry, the number of miners is decreasing: currently, a total of 58 companies are engaged in mining, and most of them exist only on paper. As Daniyar explains, these are companies that have obtained all the necessary permits but, for various reasons, do not carry out operational activities.

— For instance, one Kazakh company moved to Finland — there, the legislation is very lenient towards miners. Finnish authorities understand that in the event of excess in the energy system, instead of regulating the operation of power plants, it is easier to have a flexible consumer in the form of miners who can instantly ramp up demand and thus absorb the excess electricity in the grid. Moreover, our guys have started to recover the heat emitted by equipment in data centers and use it to heat Finnish homes. This company has already scaled up and opened data centers in Ethiopia. There are miners who have moved to Russia, and others are going to the USA, where digital mining is listed among the strategic directions, — Mubarakov shared.

According to the speaker, Kazakhstan's digital mining industry is undergoing a challenging period of adaptation and recovery after the crisis. In addition to the current problems with energy, which is showing signs of recovery, the industry has been shaken by a legal dispute between the international company GDA (Genesis Digital Assets) — the main flagship of the mining industry in Kazakhstan, and the Astana state revenue department. “In terms of scale, the potential exit of this company from Kazakhstan can be compared, for example, to Chevron leaving the oil extraction industry in Kazakhstan,” — Mubarakov clarifies.

— We have always been proud that we have an international company GDA, which has data centers in the USA, Latin America, Norway, and three data centers in Kazakhstan. They were among the first to obtain a license for mining, met all requirements for installing special equipment to monitor electricity consumption (prices for which start at 60 million tenge), GDA participated in social projects in our country, donated 300 million tenge to the “Qazaqstan Halqyna” fund and another 71 million to help those affected by floods. And now they may leave the Kazakh market due to disagreements with the tax authorities. This situation shows how uncomfortable foreign market participants feel, — Daniyar laments.

According to the speaker, due to this uncertainty, many miners do not plan to import modern computing equipment and upgrade their computational fleet. As Mubarakov clarifies, much of this moral tension in business and reluctance to consider Kazakhstan as an attractive platform for professional mining development is linked to “the excessiveness of the tax authorities’ operations” and the current disagreements with them.

— If GDA ceases its operations, we will never be able to attract such global companies as Marathon, Riot, CleanSpark to Kazakhstan, and hundreds of people, primarily young specialists in the regions, will lose their jobs. As far as I know, GDA shareholders have already sent an official letter to the president of the country, — Daniyar reported.

A turning point

Another turning point for Kazakh mining was the halving in April 2024. Halving is a technological feature of bitcoin mining, a process embedded in its source code. It implies a reduction in the number of bitcoins mined per calculated block in the blockchain by half. Thus, from April 20, 2024, miners’ earnings decreased from 6.25 to 3.125 BTC per calculated block. Halving occurs every four years and will last at least until 2140, when the last of the 21 million bitcoins will be mined. According to Daniyar, substantial preparation is needed for the halving, as due to the increasing complexity of mining processes, miners need to upgrade to more powerful, energy-efficient equipment, which is also more expensive. However, Kazakh miners were unable to do this because they hardly operated for two years.

— Currently in Kazakhstan, according to the Ministry of Digital Development, Innovations and Aerospace Industry (MDIAPI), about 300,000 units of computing equipment are registered, of which only 10% can operate under the current realities of this technological cycle. Add to this the electricity deficit and individual tax payments for it, stringent legislation, etc. So it turns out that if we used to rank second on the global stage, now we don’t even make it into the top five, — Daniyar Mubarakov laments, but he quickly adds optimistically that all these difficulties should be viewed as a certain stage of development that needs to be adapted to.

The law as assistance

After discussing the problems, Daniyar hastened to assure that overall, “not everything is so bad” in the country and the situation is gradually stabilizing. Since April 2023, the law “On Digital Assets” has been in effect in Kazakhstan, with provisions that define specific sources of energy supply for digital mining. “More or less, the system has been established. Frankly, it was established a bit late, but thanks to this, we managed to stop the final stagnation of the market and avert catastrophe,” — Daniyar argues.