The dry season is coming, are Chinese miners going to Kazakhstan to pan for gold?

In October, China's southwest region began to enter the dry season. It is reported that Sichuan alone may reduce its power supply by about 80%. There are only two options left for bitcoin mining machines in the southwest region: either leave them in the mines and collect dust, or move them far away.

In previous years, Xinjiang and Inner Mongolia were the main areas where mining machines moved in during the dry season. But this year, many miners began to discuss Kazakhstan in Central Asia.

Kazakhstan, the world's largest landlocked country, like China's Northwest, has rich coal resources and a high-dimensional low-temperature environment. It can be said that it is in the "golden dimension belt for Bitcoin mining."

Take the climate for example, in Ekibastuz, a city in northern Kazakhstan close to Russia, the temperature in the hottest month of summer rarely exceeds 28°C. Many mining farms keep the temperature around 20 degrees, so the temperature in Ekibastuz is very suitable for mining machines.

More importantly, Kazakhstan, which mainly relies on thermal power, has a surplus of 4,000MW (megawatts), which provides ample room for policy implementation and resource utilization for Bitcoin mining.

In 2020, as Kazakhstan relaxed its mining policies, miners from China began to come here to pan for gold.

Babbitt interviewed Yerbolsyn Sarsenov, the director of Enegix, the leading mining farm in Kazakhstan . Through his story, we have the opportunity to take a glimpse into the Bitcoin mining ecosystem of the Central Asian country.

With low electricity costs, Kazakhstan has become the world's fourth largest Bitcoin computing power region

This may come as a surprise to many people, as data from a previous study initiated by the University of Cambridge showed that Kazakhstan’s Bitcoin hash rate accounted for 6.17% of the world’s total, which makes it fourth in the world, behind only China, the United States and Russia.

Specifically, in the seven months from September 2019 to April 2020, Kazakhstan's Bitcoin computing power increased by 334%, leading the world.

▲ (Note: This data only collects the IP address data of the three mining pools BTC.com, Poolin, and ViaBTC, https://cbeci.org/mining_map)

What is the mining scene in Kazakhstan like? Yerbolsyn told Babbitt that there are 13 mining farms in Kazakhstan (consuming 620MW of electricity) and 4 mining farms under construction (consuming 450MW of electricity). In the mining industry, the cumulative investment exceeds $180 million. So far, a preliminary agreement has been reached to attract about $700 million in investment.

Today, Enegix has three mining farms. In September 2020, the construction of its 180 MW mining farm was completed. The mine is located in Ekibastuz near the Russian border and has about 50,000 mining machines. Moreover, its power resources come directly from the Kazakhstan power grid.

Kazakhstan's electricity is mainly thermal power, and the cost is basically stable throughout the year. Data shows that its cost per kilowatt-hour is 0.03 US dollars (about 0.2 yuan), or even lower. If we look at this data, it is actually comparable to the electricity cost in Sichuan, China during the flood season (this is a rough comparison). However, during the dry season, the electricity cost in Northwest China is between 0.3 yuan and 0.4 yuan. At this time, Kazakhstan's electricity shows a huge cost advantage. Moreover, some media reported that the electricity cost in some places in Kazakhstan can even be reduced to less than 0.1 yuan per kilowatt-hour, which is very competitive.

With open policies, Kazakhstan may become a paradise for Bitcoin mining

Although Kazakhstan is recognized as one of the regions with lower electricity costs in the world, Yerbolsyn believes that electricity costs are not the most important criterion for determining the risk factors of mining investment. More importantly, Kazakhstan's electricity surplus has reached 4,000MW, so the government is actively selling it, consuming electricity resources by exporting it to neighboring countries or selling it to consumers in the country, so that multiple parties can benefit. Therefore, government support may be a big advantage for Kazakhstan to build a Bitcoin mining ecosystem.

“The mining industry in Kazakhstan is booming. The key factor that makes Kazakhstan a safe place for mining investment is government policy, which recognizes crypto mining as a legitimate business activity and source of economic growth. Their next steps include providing reliable information to overseas mining investors, especially China and the United States,” said Yerbolsyn.

In September 2018, Enegix launched construction of a second 30MW mine. The opening ceremony was attended by Kazakh Prime Minister Bakhzyzan Sagitayev. After the mine went into production, President Nursultan Nazarbayev recognized and praised it in a televised speech.

More information shows that on June 25, 2020, the President of the Republic of Kazakhstan signed a legislative bill that clarified the regulation and taxation of cryptocurrency mining.

“Legalizing crypto mining makes the market more attractive to both local and foreign players. The official legalization of crypto mining is a key milestone in the government’s economic diversification plan. It demonstrates that the Kazakh government has adopted a consistent narrative: digital mining is a legitimate sector of the economy and its development reflects the development of the country as a whole,” said Yerbolsyn.

However, it should be made clear that Kazakhstan is gradually legalizing mining, but it still prohibits the use of cryptocurrencies such as Bitcoin.

▲Kazakhstan Prime Minister Bakhytzhan Sagintayev attended the mine opening ceremony.

Kazakhstan, the future battlefield for Chinese miners?

Yerbolsyn told Babbitt that Enegix is ​​a company in Kazakhstan that owns high-voltage infrastructure, land and factory facilities. They are also discussing hosting conditions with Chinese miners to attract and accommodate the migration of mining machines from China.

"These miners hope to move their equipment to Kazakhstan after the rainy season in Sichuan ends," said Yerbolsyn. "The border between China and Kazakhstan is open, and containers are imported free of charge. Imported products are subject to a 12% VAT and no additional customs fees are required, which is the cheapest among the CIS countries." Yerbolsyn believes that the geographical advantage will make Kazakhstan the best choice for Chinese miners in the era of mining overseas.

Recently, the media broke the news that a batch of Canaan Technology's Avalon A1166 Pros were packed and shipped to a mining farm in Kazakhstan called AQ Group Limited. Prior to this, there were probably thousands of A1066Pros running in the mining farm.

▲ Enegix's mine in Kazakhstan

After the flood season in China, the Antminer S9 will inevitably be phased out. But many people are busy exporting the miners to Kazakhstan, where they believe this mining artifact may still continue to be used.

In fact, Kazakhstan may be the overseas country that Chinese miners have the most contact with, but miners also reported that for mining, the competition is still the entire industry chain. Industries such as mining machine production, maintenance, and even mining pools are all in China, so many people believe that mining supply chain coordination in Kazakhstan will be a big problem. For example, it is very troublesome to repair a broken mining machine. When a large number of mining machines are in long-term maintenance, the cost will increase accordingly.

“Enegix has obtained pre-project agreements for the development of mining farms larger than 500 MW, mainly in the Ekibastuz region. We are also attracting local and foreign investments to build infrastructure. I think the favorable climate, cheap and abundant electricity, and government support are decisive factors in attracting miners. The most important disadvantage is the lack of information about business opportunities and security in Kazakhstan. ” Yerbolsyn believes that the supply chain will not be a problem because their business includes installing, monitoring and maintaining the operation of mining machines, and they can guarantee an average annual power uptime of 98.5% and a hash rate of 97.5% specified by the manufacturer.

Note: Wendy, the author of Babbitt, also contributed to this article.