Bitcoin mining power has risen to the third largest in the world. How did Kazakhstan become a mining investment attraction?

Kazakhstan is becoming the third largest Bitcoin “gold rush” mecca outside of China and North America, and Chinese miners have begun to migrate westward. 

According to data from the Cambridge Alternative Finance Center, Kazakhstan’s Bitcoin mining computing power accounted for 8.2% in April this year, and it has jumped to third place in the global computing power market , which is more than that in September 2019. It is a 6-fold increase. The United States ranked second with 16.8%, Russia and Iran ranked fourth and fifth with 6.8% and 4.6% respectively. 

Behind this increase in data, many of China’s leading mining companies such as Bit Mining, Canaan Technology, and Bitmain have also traveled to Kazakhstan. What advantages does Kazakhstan have, and why has it become an investment destination for crypto mining? PANews will take you through this article to understand why.  

Domestic leading mining companies have flocked to Kazakhstan 

Recently, Bit Mining, a listed mining company, officially announced its withdrawal from China’s lottery-related business, and will focus on overseas encrypted mining business. And a few days ago, Bit Mining signed a final purchase agreement to acquire 2500 new Bitcoin mining machines for a total consideration of approximately US$6.6 million. After deployment, the theoretical maximum total hash rate of these miners will increase by about 165 PH/s. 

In addition to expanding Bitcoin mining machines, Bit Mining is also continuing to promote its overseas expansion strategy in Kazakhstan. In May of this year, Bit Mining announced that it had signed a legally binding investment clause with a company in the country. The two parties will plan to invest a total of 60 million yuan to jointly build and operate a mine with a load of 100,000 kilowatts in Kazakhstan. After the mine is completed, Bit Mining will hold an 80% stake in the Kazakhstan mine. 

According to public information, Bit Mining will deploy 3,819 Bitcoin mining machines with a total computing power of 172 PH/s in the Kazakhstan data center; another 4033 Bitcoin mining machines with a total computing power of 121 PH/s have also been shipped to Kazakhstan The data center is waiting to be deployed. Bit Mining will further expand its business scale and increase the theoretical maximum total computing power capacity to consolidate its market position. 

As the first domestic listed mining company, Canaan Technology also launched its self-operated mining business in Kazakhstan in June this year, and the first batch of Avalon mining machines have been put into operation. In addition, Canaan Technology has reached cooperation with a number of companies in the head mines of Kazakhstan earlier, including a large number of new models such as A1166Pro and A1246 to be shipped to Kazakhstan. At the same time, Canaan Technology has also opened up a dedicated channel for the China-Kazakhstan trunk line to bring a better computing power delivery experience to customers at home and abroad. 

As miners flock to Kazakhstan, people are also beginning to worry about the country’s lack of mining machine maintenance and professional technical personnel. Currently, Kazakhstan does not have enough qualified maintenance personnel. Canaan Technology stated that they will open its first after-sales service center in Kazakhstan, which is also its first after-sales service center outside of China.

Bitcoin mining power has risen to the third largest in the world. How did Kazakhstan become a mining investment attraction?

Enegix’s 180,000 kilowatt data center in Kazakhstan 

As the mining industry goes to sea, once rivals will compete on the same stage overseas again. On July 23, Bitmain’s Antminer S19 Pro mining machine will also be hosted in Enegix’s 180,000 kilowatt data center in Kazakhstan. Enegix is ​​one of the largest crypto mining companies in the country. The data center was put into use at the end of 2020. As the demand for its services continues to increase, Enegix is ​​gradually expanding its scale.  

AIFC, a beautiful business card for Central Asian energy country Kazakhstan to attract foreign investment 

Kazakhstan is a landlocked country located in Central Asia and the largest landlocked country in the world, with an area of ​​2.7 million square kilometers and a population of approximately 19 million. In 1936, the Kazakh Soviet Socialist Republic was established here and joined the Soviet Union. After the disintegration of the Soviet Union, Kazakhstan became independent in December 1991, and the Republic of Kazakhstan was established at the same time and continues to this day. 

Kazakhstan is located in Central Asia and has a large amount of natural resources. Therefore, its economy is dominated by oil, natural gas, mining, and coal. At the same time, the country is also one of the countries with the richest coal resources in the world, which is more abundant than Northwest China and Inner Mongolia. As China shuts down crypto mining due to its “carbon neutral” policy, a large number of miners are currently migrating overseas, and Kazakhstan, the leader of the five Central Asian countries, is rapidly becoming a holy destination for cryptocurrency mining. 

The Minister of the Ministry of Digital Development, Innovation and Aerospace Industry of Kazakhstan (hereinafter referred to as the Ministry of Digital Development of Kazakhstan) once announced that the country plans to invest 715 million U.S. dollars to expand the encryption mining in Kazakhstan, and has invested 190 million U.S. dollars before that. At the same time, Kazakhstan’s electricity surplus has reached 4 million kilowatts. Among the 13 large-scale cryptocurrency mines in operation in Kazakhstan, the total power consumption is only 620,000 kilowatts, and there are still a lot of power resources to be explored.

Bitcoin mining power has risen to the third largest in the world. How did Kazakhstan become a mining investment attraction?

In terms of electricity cost, Kazakhstan’s mines cost 0.03 U.S. dollars (about 0.2 yuan) per kilowatt-hour of electricity, which is about the same as the electricity cost in Sichuan during the wet season. Compared with the 0.3-0.4 yuan electricity price in northwest China, it has a significant advantage. In some areas of Kazakhstan, the electricity cost is even as low as 0.1 yuan, and even low-performance mining machines can be restarted, which gives some miners room for strategic change. Moreover, the electricity of many local mines is directly derived from the national power grid of Kazakhstan, which is more stable than direct power supply, and the price is more transparent, which is one of the main reasons why the country’s electricity is very attractive. 

On the other hand, from a climate point of view, the northern part of Kazakhstan has a higher latitude geographically, which is similar to the large northwestern regions of Russia and China. The natural low temperature climate saves a lot of costs for the operation of the mine. Take Ekibastuz (Ekibastuz) in northern Kazakhstan as an example. The temperature in the hottest month of summer rarely exceeds 28°C, which is very suitable for Bitcoin mining.

In addition, Kazakhstan’s Astana International Financial Center (AIFC) is an ecosystem that is more friendly to crypto mining. It is one of the most famous financial centers in Central Asia. A regional financial hub for the Asian Economic Union, the Caucasus, Western China, Mongolia, and Eastern European countries. Companies registered with AIFC for miners will receive comprehensive closed-loop services such as visas, taxation, legal consultation, etc., which can meet the needs of miners in Kazakhstan for work and life. There are already large companies such as Bitfury and Powerry registered with AIFC. .

In addition, Alman, deputy director of the AIFC Investment Department, once stated that there are 116 power facilities in Kazakhstan that produce renewable energy, with a capacity of 1.68 million kilowatts, and the output of electricity accounts for 3% of the total electricity production. Since there is no need for electricity transportation and storage, most electricity consumption comes from the mining industry. An experienced contractor can help miners set up a managed mine within 3-4 weeks. 

On the other hand, AIFC has an offshore RMB trading center under construction in Nur-Sultan (which was renamed from Astana, the capital of Kazakhstan) in 2019. Mining companies that need financing in the local area can also use RMB directly, free of charge. Went to the trouble of currency exchange.  

Promote the legalization of cryptocurrency mining and actively embrace digital transformation

From a policy perspective, as a resource country, Kazakhstan has regarded the blockchain as the main direction of the country’s digitization, and has actively promoted the legalization of cryptocurrency mining in its own country. The country’s President Kassym-Jomart Tokayev also described cryptocurrency as “absolute innovation” and further promoted the upgrading of local mining. 

In view of the rapid development of crypto mining in Kazakhstan, the President of Kazakhstan signed a new tax law in June this year that will impose additional charges on the electricity used in the energy-intensive industry of cryptocurrency mining. The law will be implemented in 2022. It came into effect on the 1st. According to the document, the new law charges an additional fee of 1 tenge (Kazakhstan fiat currency, approximately US$0.0024) for every kilowatt-hour of electricity consumed during mining. 

The taxpayers of the new tax law are legal and natural persons engaged in cryptocurrency mining. The tax payment period is to declare once a quarter. Taxpayers directly report the results of cryptocurrency mining to the competent authority-the Information Security Committee of the Ministry of Digital Development of Kazakhstan.

In addition, the Ministry of Digital Development of Kazakhstan is also drafting regulations on the cryptocurrency industry and blockchain technology with AIFC and the Blockchain Association, and the Central Bank of Kazakhstan is planning to pilot the central bank’s digital currency, and more and more professionals are participating. At present, AIFC has established an IT park for bitcoin mining activities. Before the new tax law is implemented, data centers settled here do not need to pay other taxes except for the 1% annual “use fee”. 

In terms of digital transformation, Kazakhstan officials also support Bitcoin investment and the introduction of external investors. And on July 27th, AIFC announced a pilot project to open a cryptocurrency bank account in the country. As Kazakhstan expands cryptocurrency mining to the global market, it will soon become possible to open a bank account for cryptocurrency locally. The pilot project is expected to last for one year so that the government of Kazakhstan can evaluate the risks and benefits of digital assets. 

In this regard, the Kazakh Blockchain and Data Center Industry Association reported that crypto exchanges registered on the basis of AIFC will soon begin to cooperate with local banks to allow their customers the opportunity to use cryptocurrencies formally and publicly. At that time, citizens of Kazakhstan will have the opportunity to invest in Bitcoin, sell cryptocurrencies on the exchange market, and convert their income into other currencies. 

Specifically, to enter a crypto exchange, an investor must be the owner of a legitimate account with one of the AIFC registered banks. From this account, entrepreneurs will be able to transfer money, buy cryptocurrencies, and perform various operations on the exchange market. In addition, miners will have the opportunity to transfer the mining income received back to their accounts in the form of ordinary currency. In this case, the bank acts as an intermediary for the transaction. 

Sergey Putra, the government relations coordinator of the Kazakhstan Blockchain and Data Center Industry Association, said that the global crypto market is large enough, even if Kazakhstan only has a small market share, even 1%, then the money After coming to Kazakhstan in the form of investment, they will stay in Kazakhstan in the form of taxes, employment and wages. This is a very large industry, and Kazakhstan cannot bypass it. 

With the gradual improvement of Kazakhstan’s policy on encrypted mining, coupled with abundant power resources and increasingly specialized infrastructure construction, the country is attracting more and more miners and mining enterprises. However, at present, Kazakhstan’s cryptocurrency mining still relies mainly on coal and fossil fuels, considering that the country is committed to expanding its use of renewable energy and moving to a greener economy in 2030, and it is expected to achieve renewable energy and energy by 2050. Alternative energy accounts for half of the total consumption, and crypto mining may still face some risks in Kazakhstan in the future.

 

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