The State Of Bitcoin Mining In Kazakhstan

The industry is filled with uncertainty as unrest spread throughout the country after an energy crisis prompted a series of protests last week.

Kazakhstan has taken a toll on the bitcoin mining industry as an energy crisis prompted a series of protests and political instabilities last week. Russia has reportedly sent “peacekeeping forces” to the central Asian country as per the request of president Kassym-Jomart Tokayev, a move that sparked revolt across the region. Besides higher gas prices, Kazakhstan’s current intermittent energy and internet access have led to instability in bitcoin mining operations there, hurting the broader Bitcoin network’s hash rate — an estimated 18% of which was housed in the central Asian country as of July 2021.

Didar Bekbau, a co-founder of Kazakhstan-based bitcoin mining company Xive, explained in a Twitter thread that despite a broader negative sentiment regarding the future of bitcoin mining in the country, the current situation should be temporary as he expects Kazakhstan to be a “mining harbor” in the long term.

“There is a huge potential for building new power generation [in Kazakhstan],” Bekbau said, adding that the prospect is good for both traditional and renewable energy sources. However, he highlighted that political stability and foreign capital are crucial to pushing the industry forward in the central Asian country.

Concerns have also been raised around the security of bitcoin mining farms as riots confront police forces in violent clashes, but Bekbau said that such conflicts have mostly taken place in the country’s south whereas mining is concentrated in the central and northern regions.

“It is quite a safe situation for mining locations and facilities,” Bekbau said.

According to the miner, the main issue for the mining industry in Kazakhstan is still internet access. After the protests ensued, Tokayev declared a nationwide state of emergency, cutting phone and internet access across the country, The Washington Post reported. According to the report, Tokayev initially answered favorably to the population’s dissatisfaction, agreeing to lower fuel prices, but as protests intensified his stance changed swiftly as he blamed the unrest on outside “conspirators” and appealed to Russian-led Collective Security Treaty Organization for military troops to aid in what he called an “anti-terrorist operation.”

About 6,000 people have been detained and 164 killed as Russian troops act on Tokayev’s order on Friday to security forces to “shoot to kill without warning” as the president says foreigners are behind the turmoil, the Financial Times reported on Monday.

“At the moment, 125 criminal cases have been launched, and 5,800 people, among whom there is a significant number of foreigners, have been taken to the police,” said Tokayev’s office, per the report.

Marathon Digital Holdings CEO Fred Thiel tells Bitcoin Magazine that some bitcoin mining operations he has had contact with have hired private security forces to contain possible threats and preserve personnel and facilities from eventual negative impacts stemming from the protests.

Thiel adds there are concerns about the government shutting down bitcoin mines and confiscating equipment, a kind of environment that isn’t very welcoming for the industry. Despite the high cost associated with moving operations overseas, according to Thiel, the biggest hurdle is the overall instability and lack of security, which make it impractical to ensure a safe relocation of equipment and staff as foreign and local military forces patrol the country and violently clash with protestors.

Kazakhstan is still filled with uncertainty and major bitcoin mining farms have gone offline but the impact is limited and expected to be short-lived, Bekbau said. Restored internet access should lead most miners back online, despite the usual winter power rationing measures as demand peaks between 6 pm and 11 pm most days due to increased energy usage by households, he said.

Kazakhstan’s strategic geographical location between Russia and China and the country’s huge Uranium reserves, which account for about 40% of the world’s supply, make it vital for international diplomacy, prompting a need for political and military stability in the central Asian country. According to the FT report, the U.S. secretary of state Anthony Blinken condemned Tokayev’s “shoot to kill” order as he urges the country to tolerate peaceful protests while bashing at the president’s calling for Russian help, saying, “These ought to be things that the government of Kazakhstan can handle on its own.”

Political instability prompts uncertainties in the bitcoin mining industry as companies see their hands tied amid violent conflict, but due to a different geographical location than most riots, miners could see a prosperous future once internet access gets restored. The timeline is uncertain, however, as according to the FT report, deputy defense minister Sultan Gamaletdinov said the counterterrorist operation would continue “until the terrorists are completely eliminated and the constitutional order is restored in the Republic of Kazakhstan.”