With electricity charges at 0.2 cents and policies gradually opening up, is Central Asia becoming a "mining paradise" for Bitcoin miners?

Abundant coal and natural gas energy, cheap electricity resources, sparsely populated yet vast territory, delicious roast lamb, low prices...

These elements constitute the most distinctive features of Central Asia. The large number of coal mines and oil and gas, hundreds of coal-fired power plants, and an average electricity price of about 0.2 yuan make this region the most "favorite" region for Bitcoin miners and next-generation mining machines. For Bitcoin miners, the electricity fee of 0.2 yuan is equivalent to a "mining paradise" compared to the domestic thermal power fee of more than 0.4 yuan.

The five Central Asian countries are composed of Kazakhstan, Kyrgyzstan, Tajikistan, Uzbekistan and Turkmenistan.

The approximate location of the five Central Asian countries on the map

At the same time, countries such as Uzbekistan, whose gradually open mining and cryptocurrency trading policies seem to be allowing these "underground industries" to gradually "come to the fore".

However, according to OKEx Intelligence Bureau’s interviews with local miners, the actual situation is far from that simple. While miners are enjoying low electricity prices, they are also paying for a large number of unexpected risks.

1

Cheap electricity in Kazakhstan

"The electricity cost is less than 0.2 cents, and those mining machines that cannot be operated in the country can now make money."

Wu Zheng is one of the earliest Bitcoin miners in China to go overseas for mining. His destination is Kazakhstan (hereinafter referred to as Kazakhstan) in Central Asia, where extremely cheap thermal power resources attracted him. His long-term mining experience in Kazakhstan has made him familiar with the local diet, religious beliefs, and clothing habits, and he can even speak some Kazakh.

"We came here in the first half of 2019 and were among the first batch of miners to come here to mine. Later, other domestic miners followed us," said Wu Zheng.

For Wu Zheng, compared with the domestic thermal power price which generally exceeds 0.4 yuan, Kazakhstan's electricity price of less than 0.2 yuan is extremely attractive to him.

Coal accounts for 85% of Kazakhstan's electricity

"Mining costs mainly consist of mining machine costs, electricity charges, mining site rental fees, and operation and maintenance costs. Among them, mining machine costs and electricity charges account for the bulk of the expenses. The mining machine costs are basically fixed, and the largest variable is electricity charges. Therefore, finding cheap electricity is the best way to increase miners' profits." Wu Zheng said.

Taking the latest generation of mining machine Ant S17 pro on the market as an example, when the electricity fee is 0.4 yuan/kWh, the daily gross profit of this mining machine is 37.85 yuan, and when the electricity fee is 0.19 yuan/kWh, the daily gross profit of this mining machine is 47.81 yuan. It can be seen that the gross profit at this time increases by 26%.

However, the mining machines generally used for mining in the Middle East are of the previous generation, and "the latest generation of mining machines are basically still used for mining in China," such as Bitmain's Ant S9, Ebang International's Ebit E10, and Shenma M3.

"Our mines all use Ebit mining machines, with a computing power of 18T and a power consumption of about 1800W."

Let's take the Yibit mining machine in Wu Zheng's mine as an example. When the electricity fee is 0.4 yuan/kWh, the daily gross profit of this mining machine is 3.17 yuan. If the electricity fee is reduced from 0.4 yuan/kWh to 0.19 yuan/kWh, the daily gross profit of this mining machine will be 12.24, an increase of 286%.

Compared with the mining income of Ant S17Pro mining machine under different electricity price environments, we can also draw such a conclusion: the older the mining machine, the higher the income from overseas mining.

"If you use the Antminer S9 with slightly higher performance, you can get your money back in a month," Wu Zheng told OKEx Intelligence Bureau.

So why is Kazakhstan's electricity so cheap? This is due to Central Asia, especially Kazakhstan's abundant coal and natural gas resources.

One of Kazakhstan's many open-pit coal mines

According to public data, Kazakhstan currently has 47 coal fields, coal-producing areas, and coal mining areas. 72% of Kazakhstan's coal production comes from open-pit mining, which has low costs and high mining efficiency. In addition, Kazakhstan's coal resource reserves rank eighth in the world, with proven reserves of about 200 billion tons; oil reserves are about 5 billion tons, accounting for 3.2% of the world's total proven reserves; natural gas reserves are about 2 trillion cubic meters, accounting for 1.5010% of the world's total reserves. These energy reserves also give Kazakhstan huge potential for power generation. [1]

"In Kazakhstan, the cost of coal-fired power generation is only 0.1 cent per kilowatt-hour, and the main reason is that there is a lot of coal," Wu Zheng said. "Another main reason is that Kazakhstan allows private power plants to be built and generated, and the electricity we use comes from private power plants."

Of course, while enjoying high returns, Wu Zheng also experienced huge risks.

2

Enjoy profits and dance with risks

"The overseas (mining) pit is huge. We lost 2,000 machines in the Middle East last year (2019)."

Jiang Zhuoer, a well-known miner in the industry and founder of Litecoin Mining Pool, told OKEx Intelligence Bureau when talking about his experience of mining overseas. "Fortunately, the loss was a junk machine, so I didn't feel bad about it." But the experience gave him the lesson that "it is better to mine in China, which has the most stable political and economic environment in the world."

"Mining overseas is like an adventure. Even if you succeed, you will still be nervous." In the view of Wu Zheng, a domestic miner who overcame numerous obstacles and successfully went to sea, the process of going to sea is indeed very dangerous.

When talking about his mining experience in Kazakhstan, Wu Zheng summed it up like this. Of course, he will never forget the process of exploring the local mines when he first arrived. This process can be compared to the adventure journey of Jim, the protagonist in the British novelist Robert's work "Treasure Island". The whole process was full of ups and downs.

Cover of the novel Treasure Island

"First, you have to find a way to ship the mining machines in. This step is relatively simple. Unlike the miners who went to Iran, the mining machines had trouble passing the customs. We came to Kazakhstan relatively early, so we asked a foreign trade company to take care of this."

"But the second step is to find a mine. In Kazakhstan, the industrial base is weak. The economic development is like that of China in the early 1990s. It is a resource-based country. The light industry is not very good, and the heavy industry is not well-equipped. This is different from the miners who go to Iran to mine. At present, Iran already has professional mines, and miners can go there to mine directly, but the cost in Iran is already relatively high."

In order to find a suitable mine, Wu Zheng used his local connections everywhere and even thought of three solutions to the mine problem.

"The first is to build a mine by yourself, which takes a long time and is very expensive. You can't start mining without tens of millions of dollars of investment. The second is to rent residential houses for mining, but this can only be done on a small scale, and the electricity bill is also high, and the noise of the mining machines is very disturbing. The third is to find an abandoned factory, which is far away from residential areas and can use industrial electricity."

"The sight of a few people driving a jeep across the vast Gobi Desert reminded me of the gold-rush explorers in the American West. I wondered if someone would stab us in the back." Wu Zheng emphasized his process of finding a mine.

After nearly a month of searching and negotiation, Wu Zheng finally found an abandoned factory in the northern part of Kazakhstan - an old factory left over from the collapse of the Soviet Union - it was tall, spacious, and well-ventilated, meeting all of Wu Zheng's requirements for a mine.

In the end, Wu Zheng was the first to gain a foothold in a small mine in Kazakhstan, and the first batch of 8,000 mining machines were successfully lit up in mid-2019.

"Although there is no shortage of electricity here, it takes some effort to find reliable electricity, because the one who supplies you with electricity is equivalent to your partner. If it is unreliable, they will blackmail you without negotiation." Wu Zheng said, "Luckily, the abandoned factory we found is very close to a private thermal power station with its own 110kv substation, which is still very reliable for the mine."

The reason why partners are important is, "What if he cuts off your electricity and asks you to raise the electricity price?"

Jiang Zhuoer had a similar experience.

"Our other attempt was to mine in Canada, but our partners were too deceptive, so we eventually gave up," Jiang Zhuoer told OKEx Intelligence Bureau.

When mining abroad, local workers are of course needed, but in Wu Zheng's opinion, Kazakhs are "lazy" and domestic miners used to do the work of "one local person". Although manpower is not the biggest problem, it will hinder the progress of your project.

Of course, whether it is the risk of transporting mining machines or the difficulty of finding mining sites and stabilizing electricity, these cannot be compared with the risks brought by local policies. In fact, our mining behavior has not been recognized by the local government and needs to be "paid" on time. Mining in Kazakhstan can be described as "stealing", Wu Zheng told OKEx Intelligence Bureau.

Whether it is the transportation of mining machines, the construction of mines, or electricity cooperation, every step needs to be carefully considered, otherwise you may lose all your money.

So, are mining policies in Central Asia showing signs of improvement?

3

Analysis on the future situation of mining in Central Asia

As one of the five Central Asian countries, Uzbekistan may be the country with the most relaxed cryptocurrency policy in the region. Its frequent introduction of blockchain-related policies fully demonstrates this.

First, the “National Mining Pool” of Uzbekistan was established.

In early January this year, Uzbekistan announced the establishment of a "national mining pool". The National Administration of Projects (NAPM), which is responsible for regulating the crypto industry, announced that miners who join the pool will enjoy lower electricity prices. NAPM said that the proposed mining pool will help ensure the economic efficiency of cryptocurrency mining in the country and improve transparency and security.

This policy is undoubtedly a major benefit for Uzbek miners.

Although the Cabinet of Ministers of the Republic of Uzbekistan has ordered a 300% increase in electricity prices for cryptocurrency mining according to a statement on September 27, 2019, this has not stopped the enthusiasm of Uzbek miners.

“Our mining is proceeding normally,” an Uzbek miner who wished to remain anonymous told OKEx Intelligence.

At the same time, Uzbekistan’s policy on cryptocurrency trading is also beneficial to miners.

According to News.Bitcoin, on January 22, 2020, Uzbekistan is preparing to exempt income from cryptocurrency operations from taxation, and has previously issued a draft decree containing relevant provisions. The draft states that the business of legal persons and individuals related to the circulation of crypto assets (including business conducted by non-residents) is not subject to taxation, and the income from these businesses is not included in the tax base for taxes and other mandatory payments.

In addition, Uzbekistan will also launch its first approved cryptocurrency exchange.

In fact, the plan was already in negotiation as early as September 2018. According to previous reports by CCN, the Uzbekistan Cryptocurrency Exchange was established by the Korea Blockchain Business Association (KOBEA) in cooperation with the Uzbek government, and a memorandum of understanding was signed at the time to establish Uzbekistan's first government-licensed digital currency exchange.

Now that the exchange is about to go live, all this is not so surprising.

As early as November 2018, Uzbekistan also announced plans to implement an arbitration mechanism to resolve disputes in the cryptocurrency field. The mechanism was issued by a presidential decree of Uzbekistan and is mainly used to deal with cases involving entities in different jurisdictions. The mechanism will provide advice to companies, including foreign investors operating in the Central Asian country. The arbitration tribunal will also focus on preventing legal disputes, including cases involving national administrative authorities.

These policies have, to a greater or lesser extent, directly or indirectly promoted the development of the country's mining industry.

So how is the mining industry in Uzbekistan developing? We contacted a miner who had “migrated” from China to Uzbekistan. The miner said: “We used to mine in Kazakhstan, but now we have moved all our mining machines to Uzbekistan.”

Murod, Bitmain’s mining machine sales representative in Uzbekistan, said:

"Currently, domestic mining machine sales are normal and have not been affected by the tense domestic situation."

Of course, we cannot judge the mining situation in Ukraine based on these few words, but at least we can judge from the policies that the country continues to introduce that Ukraine is open and friendly to cryptocurrencies and mining.

So, if you are a domestic miner, faced with the skyrocketing computing power and mining difficulty, and faced with a large number of aging mining machines, are you willing to "move" and take your old mining machines out to sea for adventure?

Reference Links:

[1] Overview of Mineral Resources and Development Prospects in the Five Central Asian Countries - Kazakhstan