A New Kind of Mining: Kazakhstan Stakes Its Claim in the Cryptocurrency Industry
Oct 6, 2020
Long hailed for its extensive mineral wealth, Kazakhstan is now pursuing a different sort of mining investment. Not gold, copper, or iron, but rather cryptocurrency mining has surfaced an attractive investment opportunity in the Central Asian country.
Kazakhstan has seen a significant growth in cryptocurrency mining activities with around $200 million having been already invested in 13 mining farms that are operational around the country with four more under construction. According to the Minister of Digital Development, Innovation and Aerospace Bagdat Musin, the cryptocurrency mining industry is expected to attract investments worth 300 billion tenge ($700 million) in the coming years, which could be increased to 500 billion tenge ($1.2 billion) by 2025. While cryptocurrency mining is a relatively new industry to the country, Kazakhstan has reportedly accounted for 6.17% of the global mining hash rate, the measure of computing power to validate Bitcoin blockchains, after China (65%), the United States (7.24%) and Russia (6.9%).
First attempts at developing the crypto industry in Kazakhstan started in 2017, when the Astana International Finance Center (AIFC) announced it would cooperate with the EXANTE, an investment company, to promote blockchain operations and cryptocurrency market in the country. As the governor of the AIFC Kairat Kelimbetov also put it, “cryptocurrencies are entering the mainstream of today’s economic reality” and “the AIFC can become an international hub for development of the digital assets market.”
However, while this new industry has generally been welcomed, the lack of a clear regulatory environment as well as the novelty of the industry led to skepticism within some government agencies toward viability and security of the cryptocurrency market. For example, in March 2018, the National Bank of Kazakhstan voiced its strong opposition to the development of digital currencies citing the protection of users’ rights and a possibility of money laundering and tax evasion as major concerns. The National Bank was also planning to ban all cryptocurrency related operations, including the exchange of digital currencies for national currency and all types of mining.
Nonetheless, starting from 2019, things started to shift in favor of Kazakhstan’s crypto industry. On June 25, 2020, president Kassym-Jomart Tokayev signed a law that introduced amendments to the regulation of digital technologies and legitimized mining. Such key definitions as “digital asset”, or cryptocurrency, and “digital mining” were also introduced into the law “On Informatization.” The law also specifies that only asset-backed cryptocurrencies can legally operate in the country except for cases that will be established later. Thus, while unsecured cryptocurrencies are not officially legal, it is yet not clear whether the government will issue a complete ban on unbacked digital currencies such as Bitcoin. Overall, the introduction of the new legislation, which legitimizes mining and provides a clearer legal framework for the operation and circulation of digital assets, further signals Kazakhstan’s interest in this field. This has been done as part of the government’s vision of attracting more high-tech industry investments to promote economic diversification and growth.
While giving legal status to data mining is a crucial factor in attracting new investors, Kazakhstan’s low electricity prices are one of the most important elements in this regard. With cryptocurrency mining farms consuming significant amounts of electricity, finding cheap sources of power is significant, especially after rewards for bitcoin mining decreased by 50 percent in May 2020. In addition to being cheap, electricity prices in Kazakhstan are not subject to high volatility mostly remaining stable throughout the year as opposed to prices in China that are prone to seasonal changes. Uninterrupted availability of electricity is still another factor that makes Kazakhstan one of the most attractive destinations for data mining. As a result, one of the world’s largest mining centers with a 180 MW capacity managed by the Enegix company is slated to open in Ekibastuz. It could accommodate up to 500 mining rigs and will employ 160 people.
With increasing cryptocurrency mining investments coming into the country coupled with cheap electricity prices, Kazakhstan might become a key player in blockchain technology development in Central Asia. The introduction of the crypto mining industry across a wide range of sectors, including finance, agriculture, and healthcare, is expected to provide benefits for both the government and general population through data security, transparency, efficiency, and improved traceability. Crypto mining will also greatly facilitate a shift to digitization, which still remains a key priority on the government agenda, especially after the COVID-19 pandemic has underscored the importance of contactless operations and transactions.