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Kazakhstan is becoming the third largest Bitcoin "gold rush" destination after China and North America, and Chinese miners have begun migrating westward.
According to data from the Cambridge Center for Alternative Finance, Kazakhstan's share of Bitcoin mining computing power reached 8.2% in April this year, significantly jumping to third place in the global computing power market, and a six-fold increase compared to September 2019. The United States ranked second with 16.8%, and Russia and Iran ranked fourth and fifth with 6.8% and 4.6% respectively.
Behind this data growth, many leading Chinese mining companies such as Bit Mining, Canaan Technology, and Bitmain have also moved to Kazakhstan. What advantages does Kazakhstan have and why has it become an investment destination for crypto mining? PANews will show you the reasons through this article.
Leading domestic mining companies flock to Kazakhstan Recently, Bit Mining, a listed mining company, officially announced its withdrawal from China's lottery-related business and will focus on overseas crypto mining business. And a few days ago, Bit Mining signed a final purchase agreement to acquire 2,500 new Bitcoin mining machines at a total cost of approximately US$6.6 million. After deployment, the theoretical maximum total hash rate of these mining machines will increase by approximately 165 PH/s.
In addition to expanding its Bitcoin mining machines, Bit Mining is also continuing to advance its overseas expansion strategy in Kazakhstan. In May this year, Bit Mining announced that it had signed a legally binding investment agreement with a company in the country. The two parties plan to invest a total of RMB 60 million to jointly build and operate a mining farm with a load of 100,000 kilowatts in Kazakhstan. After the mine is completed, Bit Mining will hold 80% of the shares of the mine in Kazakhstan.
According to public information, Bit Mining will deploy 3,819 Bitcoin mining machines in Kazakhstan data centers with a total computing power of 172 PH/s; another 4,033 Bitcoin mining machines with a total computing power of 121 PH/s have also been shipped to Kazakhstan data centers and are waiting for deployment. Bit Mining will further expand its business scale and increase the theoretical maximum total computing power capacity to consolidate its market position.
Canaan Technology, the first listed mining company in China, also started its own mining business in Kazakhstan in June this year, and the first batch of Avalon mining machines have been put into operation. Canaan Technology has also reached cooperation with many companies in Kazakhstan's leading mining farms, including a large number of new models such as A1166Pro and A1246 shipped to Kazakhstan. At the same time, Canaan Technology has also opened a dedicated line channel between China and Kazakhstan to bring better computing power delivery experience to customers at home and abroad.
As miners flock to Kazakhstan, people are also concerned about the lack of maintenance and professional technicians in the country. Currently, Kazakhstan does not have enough qualified maintenance personnel. Canaan Technology said that they will open their first after-sales service center in Kazakhstan, which is also its first after-sales service center outside of China.
Enegix's 180MW data center in Kazakhstan As mining goes overseas, former rivals will compete again overseas. 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, and Enegix is gradually expanding its scale as demand for its services continues to increase.
AIFC, a shining card for Kazakhstan, a Central Asian energy country, to attract foreign investment. Kazakhstan is a landlocked country in Central Asia and the largest landlocked country in the world, with a land area of 2.7 million square kilometers and a population of about 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 established the Republic of Kazakhstan, which continues to this day.
Kazakhstan is located in Central Asia and has a large amount of natural resources. Its economy is therefore mainly based on oil, natural gas, mining, coal, etc. At the same time, the country is also one of the countries with the richest coal resources in the world, richer than Northwest China and Inner Mongolia. As China shuts down crypto mining due to its "carbon neutrality" policy, a large number of miners are currently migrating overseas, and Kazakhstan, as the first of the five Central Asian countries, is rapidly becoming a gold rush for cryptocurrency mining.
The Minister of Digital Development, Innovation and Aerospace Industry of Kazakhstan (hereinafter referred to as the Ministry of Digital Development of Kazakhstan) has announced that the country plans to invest $715 million to expand the crypto mining industry in Kazakhstan, and has already invested $190 million before that. At the same time, Kazakhstan has a surplus of 4 million kilowatts of electricity, and the total power consumption of the 13 large cryptocurrency mining farms in operation in Kazakhstan is only 620,000 kilowatts, and there are still a lot of power resources to be tapped.
In terms of electricity costs, the electricity cost per kilowatt-hour in Kazakhstan's mining farms is 0.03 US dollars (about 0.2 yuan), which is about the same as the electricity cost in Sichuan during the flood season, and has a significant advantage over the electricity price of 0.3-0.4 yuan in northwest China. In some areas of Kazakhstan, the electricity cost is as low as 0.1 yuan, and even low-performance mining machines can be restarted, which gives some miners room for strategic maneuvers. In addition, the electricity of many local mining farms is directly derived from the Kazakhstan national power grid, which is more stable and more transparent than direct power supply, which is also a major reason why the country's electricity is very attractive.
On the other hand, from a climatic perspective, Kazakhstan's northern region is located at a higher latitude, close to the northwest regions of Russia and China, and the natural low-temperature climate saves a lot of costs for the operation of the mine. Take the northern city of Ekibastuz in 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 a more crypto-friendly ecosystem. It is one of the most famous financial centers in Central Asia and aims to become a regional financial hub covering the entire Central Asia, the Eurasian Economic Union, the Caucasus, western China, Mongolia and Eastern European countries in the future. Miners registered with AIFC will be able to obtain complete closed-loop services such as visas, taxes, and legal advice to meet the miners' needs in all aspects of work and life in Kazakhstan. Large companies such as Bitfury and Powerry are already registered with AIFC.
Moreover, Arman, deputy director of AIFC Investment Department, once said that Kazakhstan has 116 power facilities 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 demand for power transportation and storage, most of the electricity consumption comes from the mining industry. Experienced contractors can help miners set up hosting mines within 3-4 weeks.
On the other hand, AIFC has an offshore RMB trading center under construction in Nur-Sultan (renamed from Astana, the capital of Kazakhstan in 2019). Mining companies can directly use RMB when they need financing locally, eliminating the trouble of currency exchange.
Promote the legalization of cryptocurrency mining and actively embrace digital transformation. From a policy perspective, Kazakhstan, as a resource-rich country, has regarded blockchain as the main direction of national digitalization and actively promoted the legalization of cryptocurrency mining in the country. The country's President Kassym-Jomart Tokayev has also described cryptocurrency as "absolute innovation" and further promoted the upgrading of the local mining industry.
In view of the rapid development of crypto mining in Kazakhstan, the President of Kazakhstan signed a new tax law in June this year, which will impose additional charges on electricity used in the energy-intensive industry of cryptocurrency mining. The law will officially take effect on January 1, 2022. According to the document, the new law charges an additional fee of 1 tenge (Kazakhstan legal currency, about US$0.0024) for each kilowatt-hour of electricity consumed during mining.
The taxpayers of the new tax law are legal persons and natural persons engaged in cryptocurrency mining. The tax payment period is quarterly. 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 digital currency, with more and more professionals participating. Currently, 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 "usage fee" of 1% of the annual turnover.
In terms of digital transformation, Kazakhstan officials also support Bitcoin investment and the introduction of external investors. And on July 27, AIFC announced a pilot project for opening cryptocurrency bank accounts in the country. As Kazakhstan expands cryptocurrency mining to the global market, it will soon be possible to open local bank accounts for cryptocurrencies. The pilot project is expected to last for a year so that the Kazakh government can assess 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 officially and publicly. At that time, Kazakh citizens will have the opportunity to invest in Bitcoin, sell cryptocurrencies on the exchange market, and convert income into other currencies.
Specifically, to enter the crypto exchange, the investor must be the owner of a legal account in one of the AIFC registered banks. From this account, the entrepreneur 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, government relations coordinator of the Kazakhstan Blockchain and Data Center Industry Association, said that the global crypto market is large enough that even if Kazakhstan only occupies a small part of the market share, even 1%, the money that comes to Kazakhstan in the form of investment will stay in Kazakhstan in the form of taxes, employment and wages. This is a very large industry and Kazakhstan cannot bypass it.
As Kazakhstan's policies on crypto mining gradually improve, coupled with its abundant electricity resources and increasingly professional infrastructure construction, the country is attracting more and more miners and mining companies. However, at present, Kazakhstan's cryptocurrency mining still mainly relies on coal fossil fuels. Considering the country's commitment to expanding its use of renewable energy and turning to a greener economy by 2030, and its expected goal of achieving renewable energy and alternative energy accounting for half of total consumption by 2050, crypto mining may still face some risks in Kazakhstan in the future. |
