Police arrest a demonstrator denouncing the prices of liquefied gas in Kazakhstan, Jan. 5, 2022.(AP Photo/Vladimir Tretyakov)
Protests sparked by rising fuel prices have left dozens of people dead and hundreds injured in clashes with police in Kazakhstan, Bitcoin’s second-largest mining hub.
Nationwide internet and telecommunications cuts have been reported because of the unrest, affecting the country’s local cryptocurrency mining operations, which are among the largest in the world.
After China evicted its cryptocurrency miners in May 2021, many miners sought refuge in Kazakhstan, moving their mining operations there and taking advantage of the cheap electricity rate. Chinese authorities said it cracked down on bitcoin mining to protect the country’s efforts to reduce carbon emissions.
Cryptocurrency mining requires high-powered computers that solve complex mathematical puzzles to create a new block on the blockchain. It requires significant computer power and electricity, and Kazakhstan, with its rich energy resources, became an attractive alternative to China for miners.
The internet shutdown, which was ordered by Kazakhstan President Kassym-Jomart Tokayev, took an estimated 15 percent of the world’s Bitcoin miners offline, according to Kevin Zhang of digital currency company Foundry, which helped bring more than $400 million of crypto mining equipment into North America.
Kazakhstan was responsible for more than 18 percent of the global Bitcoin network hashrate in August 2021, second only to the U.S., according to the Cambridge Centre for Alternative Finance.
Hashrate refers to the total computational power that is being used to mine cryptocurrency, according to CoinDesk.
About 40 percent of the mining hashrate disappeared after the China ban and reappeared in Kazakhstan, Siberia, and Texas, among others.
The unrest in Kazakhstan might lead miners to look elsewhere for their operations, according to Anirudh Rastogi, founder of tech law firm Ikigai Law, which works with cryptocurrency exchanges in India.
“It will eventually come down to miners finding the right hub for their activities. They need a place with political stability and cheap electricity,” said Rastogi.
For months, Kazakhstan lawmakers have been setting down new rules to discourage crypto mining, including a law that will introduce extra taxes for crypto miners starting in 2022.
Internet service was subsequently restored across Kazakhstan. The big question now is how much confidence Bitcoin miners have in the county’s stability, and where they will head to next if the chaos continues.
How profitable is bitcoin mining? In November 2021, the price of a bitcoin was around $55,000. Miners were rewarded 6.25 BTC for a completed block or $344,000 for successfully completing a hash.
Bitcoin was trading at $41,902.46 as of this writing.
Listen to GHOGH with Jamarlin Martin | Episode 74: Jamarlin Martin Jamarlin returns for a new season of the GHOGH podcast to discuss Bitcoin, bubbles, and Biden. He talks about the risk factors for Bitcoin as an investment asset including origin risk, speculative market structure, regulatory, and environment. Are broader financial markets in a massive speculative bubble?
