Kazakhstan is increasingly important to crypto mining following China’s crackdown on the industry earlier this year, and is now the world’s second-biggest contributor to the Bitcoin network in hashrate. But the Central Asian nation is suffering from power shortages and is rationing electricity consumption, posing what could be an existential threat to the lucrative but energy-intensive business of mining for digital gold.
Authorities in Kazakhstan are proposing to significantly limit the power consumption for newly authorized crypto miners.
The country’s energy minister on Oct. 1 proposed a draft bill to limit the nationwide total electricity consumption to just 100 megawatts for new crypto miners seeking for technical permissions to connect to the power grid. To put that into perspective, Enegix, a major crypto mining firm in the country, last year opened a 180 megawatt mining data center, and that’s just the power consumption — at full capacity — for one mining center for a big player.
“The order has not been approved yet,” Didar Bekbauov, a co-founder of Xive, a crypto mining company in Kazakhstan, told Forkast.News, citing internal sources familiar with the matter.
Bekbauov has also tweeted that existing legal mining farms will not be subject to the newly proposed power restrictions.
Yerbolsyn Sarsenov, co-founder and CEO of Enegix, told Forkast.News in a written note that its existing mining facilities won’t be affected by the new restrictions if they are passed.
“Our data centers have technical permissions and power purchase agreements [with quota for more power than what’s stated in the newly proposed restriction],” Sarsenov said, adding the company will continue receiving power legally based on its electricity purchase agreements that were already in place.
The proposal to limit power consumption comes as the country continues to see power shortages in some areas.
Sarsenov said the power deficit situation was primarily due to the failures of some major power plants in northern Kazakhstan, coupled with the increasing number of illegal crypto miners that misused the power granted for non-crypto mining purposes. “The government is taking measures to identify and disconnect illegal miners,” he said.
Impact on the ground
Bekbauov said his company’s mining farm in the south of the country — which typically sees power shortages historically — has been disconnected from the electricity grid for about six weeks now, adding that the halted operation there accounted for half of the company’s total operation.
“We are looking [for] options to move,” Bekbauov added.
Generally, the southern part of the country “is more prone to power deficiencies than the north, where our facility is located,” Sarsenov said.
Both companies, however, are still experiencing power rationing during peak hours. Sarsenov said that its facilities have been limited for power consumption for about two to three hours every day, but they were never entirely disconnected.
Kazakhstan became a sought-after destination for Chinese miners earlier this year when its low electricity prices proved a magnet for miners making an exit from China following the clampdown there.
As things are not looking as appealing in Kazakhstan, Bekbauov said Xive had to postpone some of its mining facility construction projects with overseas miners and investors.
“Some [Chinese] miners decided to sell mining equipment, and some decided to move elsewhere,” Bekbauov said, adding that some are still waiting for the final outcome of the proposed power limitation bill for new miners to make further decisions.
A Chinese miner who has bet big on Kazakhstan and requested anonymity told Forkast.News that the authorities mainly carried out power rationing measures in the eastern and southern parts of the nation, and that his company’s mining sites are not affected much.
Government measures to restore power supply
Additionally, the government is taking a series of measures to address the power deficit issue. Sarsenov said the government is working to repair the failed power plants, maximize the capacity of plants that still function, import electricity from Russia, and identify and eliminate illegal miners.
Denis Rusinovich, a co-founder of industry professional networking platform Cryptocurrency Mining Group, who has also served as a vice president of Kazakhstan’s blockchain industry lobby, told Forkast.News that it’s unlikely for the country to destroy lead players in the market now by major reduction of existing power capacity. “That will be disastrous for the [crypto mining] sector,” he said.
Rusinovich said the current development has definitely put pressure on all miners that are considering entering Kazakhstan. “The longer we wait for the government to [present] their clear roadmap and strategy for this new sector, the more collateral damage is done to the profile of Kazakhstan, which was carefully built over the last four years,” he said.
Indeed, Kazakhstan’s Bitcoin mining hashrate share had surged, at least until the end of August.
The latest data from the Cambridge Bitcoin Electricity Consumption Index compiled by the Cambridge Centre for Alternative Finance indicate that at the end of August, Kazakhstan came in second in terms of global hashrate share, accounting for 18.1% of the total, up from 8.2% at the end of April.
The U.S., at the end of August, held the largest share of 35.4%, while Russia came in third with 11.2%, according to the data.