As the Central Asian nation of Kazakhstan plunged into chaos this week, an internet cut hit the world’s second-largest bitcoin mining hub, dealing another blow to miners looking for a home. permanent and stable.
Less than a year ago, China banned all of its cryptocurrency miners, many of whom have sought refuge in neighboring Kazakhstan. But months after these crypto migrants settled in, protests over soaring fuel prices turned into the worst turmoil the country has seen in decades, leaving crypto miners caught in the middle.
After sacking his government and enlisting the help of Russian paratroopers to contain the deadly violence, Kazakh President Kassym-Jomart Tokayev ordered the country’s telecommunications provider to shut down internet service. The shutdown took about 15% of the world’s bitcoin miners offline, according to Kevin Zhang of digital currency company Foundry, which has helped bring more than $ 400 million in mining equipment to North America.
As the Kazakh miner Didar Bekbau says, “No internet, so no mining.”
Bitcoin fell below $ 43,000 for the first time since September in trading on Thursday, falling more than 8% at one point.
Kazakh law enforcement officers block a street during a protest sparked by rising fuel prices in Almaty, Kazakhstan, Jan.5, 2022.
Pavel Mikheev | Reuters
Internet service has since been restored to the country, but the entire episode bares two important facts about the state of the bitcoin mining industry. On the one hand, the bitcoin network is so resilient that it doesn’t skip a beat, even when a significant portion of the miners are unexpectedly taken offline. Second, the United States may soon see a new influx of crypto miners looking to avoid future disruptions.
The question now is whether the United States, which eclipsed China as the biggest bitcoin mining center on the planet in 2021, has the option of hosting more miners.
“What’s worrying is that the previous congestion and bottlenecks around accommodation capacity (space readily available to plug in machines) will be further reduced,” Zhang said.
“There is a tremendous amount of pressure and demand for accommodation capacity,” he said.
Bitcoin mining in Kazakhstan
When Beijing kicked off all of its bitcoin miners in May 2021, Kazakhstan seemed like a logical destination. Beyond the fact that it was right next door, the country is also a major energy producer.
Mining is the energy-intensive computer process used to create new coins and maintain a log of all transactions. Kazakhstan is home to coal mines that provide a cheap and plentiful supply of energy, which is a major incentive for miners who compete in a low-margin industry where their only variable cost is usually energy.
It also helps that the Kazakh government generally has a more lax attitude towards construction, which is good for miners who need to build physical facilities in a short period of time.
Bekbau runs Xive, a company that provides accommodation services to international miners and sells specialized equipment needed for mining. Over the past few months, he has made countless incoming calls from Chinese miners looking for a safe place to plug in their equipment.
Kazakhstan is just behind the United States in terms of share of the global bitcoin mining market, with 18.1% of all crypto mining, according to the Cambridge Center for Alternative Finance.
But the government hasn’t really been excited about its booming crypto mining industry.
For months, Kazakh lawmakers laid out new rules to discourage mining, including a law that will introduce additional taxes for crypto miners from 2022. Experts expect this decision to change significantly incentives for people seeking to deploy capital in Kazakhstan.
“The internet blackout follows efforts to impose a de facto ban on new mining operations in the country, so miners will have been well aware of the political risk there,” said Nic Carter, co-founder of Castle Island Ventures.
“These bans only underscore why minors are increasingly moving to politically stable jurisdictions,” Carter continued.
Several mining experts also told CNBC they believe Kazakhstan was still intended to be a temporary stopover on a longer migration west.
Alex Brammer of Luxor Mining, a cryptocurrency pool designed for advanced miners, said large miners are heading to Kazakhstan at short notice with older equipment.
“But as older generation machines reach the end of their useful life, these companies will likely deploy new machines in more stable, energy efficient and renewable jurisdictions,” said Brammer.
The United States has quickly become a mecca for crypto mining, in part because it is home to some of the cheapest energy sources on the planet, many of which tend to be renewable.
If miners head west, that could bode well for the larger debate over bitcoin’s carbon footprint.
Carter points out that Kazakh energy is carbon intensive, so much like the Chinese ban, a prolonged blackout in the Central Asian country would likely have the net effect of further decarbonizing bitcoin mining.
But not all are convinced of an impending crypto-mining exodus from Kazakhstan.
Alan Dorjiyev is president of the National Association of Blockchain and Data Center Industry in Kazakhstan, whose members are mainly mining companies. Dorjiyev told CNBC that after speaking with owners of mining farms across the country, he understands that most data centers are secure because they are located in areas where there are no protests.
Bekbau also remains optimistic, tweeting that he hopes by next week, “It’ll be OK.”
Whether the miners leave Central Asia or not, industry experts tell CNBC that the biggest takeaway from this whole ordeal is the fact that bitcoin mining has, once again, survived another. stress test with little drama.
“As we have seen with China, when a country shows that it is unstable for mining bitcoin, the miners in that country will go elsewhere, ”said bitcoin mining engineer Brandon Arvanaghi, who now heads Meow, a company that enables corporate treasury participation in crypto markets.
“This is how the bitcoin network becomes more resilient over time. Miners migrate to the more favorable jurisdictions, making disruptions less and less frequent.”