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TematicheRussia e Spazio Post-sovieticoConsequences of Chaos in Kazakhstan on Cryptocurrency Mining

Consequences of Chaos in Kazakhstan on Cryptocurrency Mining

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For having comparative advantage of cheap electricity among central Asian countries, Kazakhstan was the country who accelerated in cryptocurrency “bitcoin” mining in pass of few months as the cryptocurrency got entirely banned in China. In evaluation of country share in bitcoin mining, Kazakhstan got the second largest place after the USA. Conversely, the internet shut down on January 5 in Kazakhstan for controlling mass protests adversely affected the bitcoin price. Such that from 6th-8th January the bitcoin price decreased below 43000$. The decrease in bitcoin prices and political instability in Kazakhstan creates a new uncertainty of what might happen to bitcoin mining and if bitcoin mining will move to other countries; if so to which country(s) and why? 

Cryptocurrency is electronic money used as a medium of exchange, the process is held by information technology systems, and cryptography is responsible for the protection of confidentiality of the transactions. In 2009, a group of programmers under pseudonym of Satoshi Nakamoto invented this system. Although, it was mainly built to decentralize payment system out of the site of even governments and banks for avoiding unnecessary commissions. But some countries and governments did not allow the usage of the system in their territory such as, Kazakhstan, until 2018 the government had not allowed cryptocurrency for payment transactions. The reasons for the restriction were provided by some Kazakh experts: it causes the state monopoly to lose their power on the issue of money, reduces the demand for local currency and as a result depreciates the local currency, hampers the control of monitory policies by the central banks, reduces and or eliminates the financial intermediaries in the country. The above explanations were highly supported by the Head of the National Bank of the Republic of Kazakhstan, D. Akishev, claiming that the system is totally unpredictable and since it is an unreliable transactor system the possibility of money laundry through the system is very high

Cryptocurrency is also identified as a killer of electricity. The well-known cryptocurrency, bitcoin, is consuming 110 terawatt-hours per year which is equivalent to 0.55% of global electricity production which is enough for supplying electricity to a small country like Malaysia or Sweden for a year. In June 2020, President Kassym-Jomart Tokayev legalized “digital code” activity in Kazakhstan and the industry boomed following the ban of cryptocurrency in China in May. Since the activity consumes a large amount of electricity and upsurges in countries with cheap electricity supply. Due to which the activity mainly moved to Kazakhstan because on average the per kWh electricity price in Kazakhstan is 5 cents, compared to 9-11 cents in Russia, China, and the USA. In Kazakhstan, the energy consumption for bitcoin mining accelerated in pass of few months and according to global share of bitcoin mining, Kazakhstan got the second place after the US

The other reason behind the movement of a large part of cryptocurrency “bitcoin mining” in Kazakhstan was because Kazakhstan was a politically stable country just before January 2022. But the country became an unstable country due to mass protest following the increase in oil price by the government in January 2022 and for controlling the protest the government shut down the internet on January 5, 2022. This action of the government adversely affected the bitcoin mining industry of Kazakhstan which cumulates 15-20% of world’s bitcoin mining capacity and the price of bitcoin decreased below 43,000 US dollars from January 6th-8th as shown in the figure below. The source also informs that while the country still suffers from political instability there is a concern about the cryptocurrency mining. But it might not remain forever and some believe that since 2/3 of Kazakhstan’s electricity energy production was produced by fossil fuels and had carbon footprint now this industry might move to west particularly to the US and Texas. Which will be more environment friendly. Though it is being predicted that it will move to the west where the electricity is cheap and produced by renewable energy but again its price has been predicted to increase even more and reach to 100,000$ by the end of this century

Figure 1: Bitcoin price

Overall, the 21st century innovations have brought countable changes into our lives and has even eased the purchasing power of human through the cryptocurrency and the well-known cryptocurrency, bitcoin mining. Which is an electronic money used for online purchases around the world and uses a large amount of electricity that the annual electricity used for a bitcoin transaction is said to be enough for supplying of electricity for a small country like Sweden for a year. From the year that it was invented “2007” until now its value has increased significantly and has reached over 45,000 US dollars and is been predicted to hit 100,000$ by the end of the century. Kazakhstan is one of the Central Asian countries where the electricity price is so cheap and was advantaged to grab the Chines cryptocurrency manners after the activity was banned in China. Due to political instability and because of mass protection against government starting from January 2022 and following the internet shut down by the government in Kazakhstan the bitcoin price decreased below 43,000$. It is being predicted that this activity will move to the western countries particularly to the US, Texas due to cheap electricity produced by renewable energy. This may lead to more fluctuations in price because if the mining shifts to the US it will affect the price of renewable energy and could lead to changes in energy regulation and taxation.

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