Monday, January 10 of this year, has already been named by the holders of the most popular cryptocurrency - Bitcoin - "on Black Monday. Which is not surprising, because the value of this very bitcoin fell from a record 69 thousand US dollars to 39,83 thousand dollars. Now, the main reason for the fall in the cryptocurrency exchange rate is the majority of Western experts citing the January events in Kazakhstan, where the Internet was completely turned off against the background of mass riots and pogroms, which undoubtedly caused a complete paralysis of the work of mining farms (last year, Kazakhstan ranked second in the world after the United States in terms of mining , and the shares of these states in global mining became 35,4 and 18,1%, respectively). On this occasion, ElitExpert collected the opinions of Kazakh experts.
Yevgeny Kosenko: "Of course, there is a certain reason in these assessments. However, if you look more closely at the dynamics of the rate, you will see that the fall began even before the beginning of the dramatic events in Kazakhstan, namely, literally from January 1 (unlike traditional exchanges, world exchanges of cryptocurrencies work outside holiday schedules and weekends in a non- stop). And then experts called a few other reasons for this fall, although Kazakhstan still figured in them. One of the motivating reasons for the exchange rate regression was the tightening of the monetary policy of the United States, or rather, the announcement by the Federal Reserve System of the States to raise interest rates in the next few months, and the second and most important reason was the beginning of the outflow of mining farms from the territory of Kazakhstan, caused by the changes in the republican legislation. At the same time, the analysts of the "Bloomberg" agency gave a forecast that, in their opinion, these two combined reasons could lower the Bitcoin rate to $20 by the middle of this year. At least until the stabilization of the work of mining farms on the territory of some other state, for example, Russia, which, however, by the end of the year confidently held the third place in terms of global mining.
In the case of the flow of miners from Kazakhstan to the Russian Federation, it is obvious that the northern neighbor will take second place, and at the same time will have the same problems that Kazakhstan began to experience last year with the increase in miners (we will talk about this in more detail later).
So, in this connection, it will be useful to understand - what are the pros and cons of the development of this, as yet, relatively little-known industry for our country, and what forecasts await the Kazakhstan crypto-production market in the future.
For reference: Bitcoin, the most popular and over-advertised cryptocurrency, was first described in 2008 by a person (or group) under the pseudonym Satoshi Nakamoto.
Bitcoin is based on blockchain, a technology for transmitting data in an electronic chain. Blockchain links are stored on different computers, and their authenticity is confirmed by a mathematical algorithm without the participation of a controlling body
The main competitor of bitcoin in the cryptocurrency market - Ether (Etherium) - was created by the Russian-Canadian programmer Vitalyk Buterin in 2013.
As the participants of the cryptocurrency market themselves figuratively point out: if you draw analogies with the metal market, then bitcoin is gold, all other cryptocurrencies are other, less precious metals. Today, Bitcoin is the standard.
Cryptocurrency is recognized as an official means of payment only in El Salvador. Last year, the Verkhovna Rada of Ukraine legalized digital assets. In Russia, cryptocurrency is used to a very limited extent, mainly to support IT projects with foreign participation...
The business is incomprehensible, but clearly profitable
As for Kazakhstan, professional interest in cryptocurrencies, and more specifically in bitcoin, was manifested here back in 2018, when the first crypto exchange "Eurasia Blockchain eXchange (EBX)" was registered at the Almaty International Financial Center (IMFC) as part of an experimental legal regime.
- Our crypto exchange is a startup project implemented in the fintech sandbox mode. Therefore, we start with a small amount of cryptocurrencies that will be traded with us. These are Bitcoin, Ethereum, USDT. As the work of our exchange develops, we plan to expand the range of digital assets and types of operations, - the head of the exchange, Nurbolat Akysh, explained to business publications of Kazakhstan in June 2018.
At the same time, at that time there was no official permission for own mining of cryptocurrencies (that is, mining) in the Republic of Kazakhstan. Partial legalization of mining occurred only two years later - in June 2020, this type of activity received separate legal norms. So, for example, the general classifier of types of economic activity (OKED), which is updated every four years, was approved at the end of 2020 and, accordingly, there is no concept of "mining" in the current Kazakh list of OKED. Currently, the documents use a streamlined wording: "energy-intensive industry, including mining."
As for crypto exchanges, after some time there were already two of them (the second one was also registered with the AIFC), however, they could not work fully, since in our country it is forbidden to open and maintain bank accounts related to cryptocurrencies. Correspondingly, other operations are also impossible, such as: payment of salaries to employees, payment of taxes and other economic activities.
So, I tried the launches in the test mode, after some time both crypto exchanges became silent in anticipation of "better times".
The "best times" began to come from the middle of 2020 (in the period of 2019, there was a crisis in the entire world market of cryptocurrencies and many leading foreign miners actually suspended their activities, since the price of cryptocurrencies was barely higher than the labor and energy costs). In 2020, the margin increased and the development of this type of activity went up again.
However, the real breakthrough was the partial legalization of mining, after which, according to the Ministry of Digital Development, already at the beginning of 2021, about ten large mining farms began to operate in the country (by the way, the correct name of these enterprises is "data center").
In addition, at the end of February last year, the Minister of Digital Development, Innovation and Aerospace Industry Bagdat Musyn announced that Kazakhstan intends to transfer 1% of the world turnover of cryptocurrencies to its exchanges. At the same time, the minister emphasized that in the foreseeable future Kazakhstan will still not recognize cryptocurrencies on its territory, but will mine them and participate in the global crypto industry.
By the way, the first volume data were announced at the same time, according to which Kazakh data centers make up about 6% of world mining and mine cryptocurrencies worth about 18–28 million dollars per month.
In June of last year, another important event for the global cryptocurrency industry took place - the complete ban on their mining and sale in China. Almost immediately, the delivery of devices for obtaining digital assets (that is, those very mining installations) began in Kazakhstan, where, according to some estimates, their number exceeded four thousand. According to the data of the market participants themselves, only the Chinese company "Canaan" delivered about two thousand crypto-mining units to our republic in the period from May to October 2021.
At the same time, some of them were very compact and could fit in the trunk of a truck.
It is worth taking a moment to relax and see what a large, legal data center is. At the end of last year, there were several such in Kazakhstan - "Xive", "Bitfufu" and, perhaps, the most famous center "Enegix", located on the border of the city of Ekibastuz and which is the largest data center in the territory of the countries of the former USSR.
According to official data, the owners of this center are Zhanat Aldebergenov and Erbolsyn Sarsenov, and the volume of investments exceeds 10 billion tenge. According to the State Revenue Committee of the Ministry of Finance of the Republic of Kazakhstan, since the beginning of 2021, the company has paid about 97 million tenge in taxes.
According to available descriptions, the "Enegix" data center consists of eight capacious hangars and a dozen smaller ones located on 15 hectares of land, which are under careful round-the-clock security.
As the director of the data center Erbol Turgumbayev once informed representatives of the republican mass media:
- There are more than 50 thousand mining devices in the hangars, which consume about 130 MW of electricity around the clock. For comparison, the city of Ekibastuz consumes about 7.00 MW during the period of peak loads - in the morning from 10.00:18.00 a.m. to 22.00:30 a.m. and in the evening from 2021:14 p.m. to 180:200 p.m. In November XNUMX, more than XNUMX devices should come to us in two batches, and then we will already be working at full capacity, with a total of XNUMX MW. About the same amount as the city of Karaganda consumes. The full staff of Enegix employees is XNUMX people...
It is curious that the "Enegix" data center is not a crypto-company, but only provides a platform for the installation of mining devices, which is provided with everything necessary: specially equipped premises, electricity, Internet, security operators. And the tenants, that is, crypto-firms and mining companies themselves, pay a subscription fee for each installed device.
- We cooperate with such large organizations as Bitmain, Atlas Mining, Genesis and others - about 60 players in total. These are mostly foreign companies that have been on the cryptocurrency market for a long time. We also have small Kazakhstani crypto mining companies, but their fate is not so high yet. All enterprises themselves are engaged in the purchase and delivery of their equipment. Therefore, it is difficult for me to say how much each of the installations costs and how many bitcoins or other cryptocurrencies they mine. We only make sure that the equipment is certified, works correctly and does not cause malfunctions. And we ensure continuous operation of these devices, ErbolTurgumbaev told journalists.
As we already know, only the Enegix company, according to its managers, consumed electricity equivalent to the needs of a small city. And in general, according to the estimates of the Ministry of Energy of the Republic of Kazakhstan, mining farms located on the territory of the country consume about 1 GW of electricity, which is comparable to the installed capacity of one of the largest power plants in Kazakhstan - Ekibastuz GRES-2.
At the same time, around 15 GW of electricity is required throughout the country in the most energy-intensive, winter period of consumption, with the total maximum capacity of the entire Kazakhstan energy system of 20 GW.
In general, it becomes clear that with such accelerated development of both legal and gray mining farms, a shortage of electricity will not be avoided.
However, for some reason, this factor was not taken into account for quite a long time (perhaps because in the summer period, the energy of the country somehow coped with the almost weekly large and small crypto-productions). And by the fall, the country's authorities at different levels were wondering how to put this process on a legalized civilized platform and benefit the country's budget?
- So far, miners do not bring any benefit to Kazakhstan. In addition, the volume of "gray" mining is approximately comparable to the volume of "white" mining. That is, it is very much. It is interesting that this "gray" mining is mainly concentrated in the southern regions. It is necessary to create an official register for accounting of mining farms, understand how many there are, order them, make them pay taxes and establish a special tariff for electricity, - thought the deputy of the Majilis Zhambyl Akhmetbekov.
The question of the legalization of crypto-firms, at least for their counting, also arose closely:
- Not all are officially registered as companies engaged in mining-related activities. This is an unlicensed activity. They may not receive any permits. I think that we also have hidden farms. The only thing is that when importing equipment, it is necessary to obtain a permit from the Central Bank of Ukraine, since it all relates to encryption equipment. According to the laws, the import of such equipment is accounted for. Also, according to the law, if you are engaged in mining, then you need to notify the Digital Development Committee about your activities, - Alan Dorjiev, president of the Kazakhstan Association of Blockchain and Data Center Industry, clarified some details to journalists.
Last fall, in Almaty during a meeting with financial market participants, the head of state also raised the issue:
- Cryptocurrencies are an objective factor that cannot be simply ignored. It is necessary to soberly assess the risks and the potential of their influence on the current financial system. Therefore, work on the formation of balanced regulatory conditions for the creation of crypto exchanges in our country should be resumed. Otherwise, it turns out that we are the number two country in the world in terms of cryptocurrency mining, but we practically do not see financial returns, - said Kasym-Jomart Tokaev, and at the same time called on the government and the National Bank to accelerate the development of a digital tenge (token), which can become the core of the updated financial system of Kazakhstan .
Around the same time, the mass media announced the forecast of a number of economists who optimistically assumed that in the next five years the economic effect of the mining industry in Kazakhstan would exceed 1,5 billion US dollars, and potential taxes were no less optimistically estimated at more than 300 million US dollars. However, it was still unclear how these taxes were collected. Financiers began to brainstorm on the subject of how to practically approach the implementation of the president's proposals and, in particular, the problem of taxation of mining operations, but here, in fact, the energy crisis broke out.
World or crypto-business?
According to the data of the state network company of Kazakhstan "KEGOG" as of October 2021, the demand for electricity grew by 8% in annual terms and amounted to about 82,9 million MWh (although previously the threshold indicator did not grow by more than 2 percent ). Because of the overload, literally one after the other, three serious accidents occurred at stations and power grids, due to which it was necessary to temporarily turn off the electricity in tens of thousands of apartments in several regions of the country. In addition, the country was forced to increase the import of electricity from the Russian Federation at fairly high tariffs.
As a result, a draft order of the Minister of Energy appeared, according to which the KEGOC system operator will consider applications for connection only for farms with a consumption of up to 1 MW of electricity. But if all applications across Kazakhstan exceed the limit of 100 MW, KEGOC will stop issuing connections to new miners. In addition, a second rule has appeared, according to which Kazakhstani miners will pay an additional tax of one tenge for each kilowatt of electricity consumed from January 2022. By the way, this also raised some questions:
- Legal miners have not yet been classified in any way. In my opinion, the adoption of these tax amendments was hasty, because it has not been determined how to legally define and fix them. In fact, we do not yet have companies that are engaged in mining, because it is impossible to register officially. Accordingly, this law cannot be applied to the full extent, since the entities that fall under its activity cannot be officially registered as mining companies either, - Alan Dorjiev, the president of the blockchain association, thought on the pages of the country's business publications.
- An additional tariff of one tenge for each kilowatt used by miners, at the current market level, will bring Kazakhstan 3,5 billion tenge annually, possibly even more - 4,5–5 billion tenge, but I will repeat how this will all be fixed - big question...
Apparently, the question remained open, since already in November-December last year, a mass migration of cryptomining companies from Kazakhstan began.
- We are saddened by the fact that the national monopolist company KEGOC, with the support of the Ministry of Energy, has repeatedly changed its position regarding the cryptomining industry. The lack of regulation at the legislative level revealed significant risks that radically changed the investment climate for local and foreign business in the country. If just two or three months ago, Kazakhstan was considered a high-tech platform for foreign investments, now in foreign business circles, investments in Kazakhstan's economy are considered an excessive risk. Despite the fact that we agreed to pay taxes, conduct our activities legally like any other type of business and contribute in every way to the overall development of the industry, we did not meet stable support from the state and we are leaving Kazakhstan, in particular, the Greek investor commented on the situation to journalists "Qazaq DCS" LLP Leon Yohai.
- Our company was one of the pioneers in the cryptomining industry in Kazakhstan. In four years, a huge amount of foreign investments was attracted. Despite the contracts with the energy supply organization "KEGOC", since November of this year, we have been disconnected daily. As a result, expensive mining equipment that was imported into Kazakhstan officially and with payment of all duties regularly breaks down. At the moment, our clients and investors are making active efforts to search for accommodation in countries with different tariffs, but lower investment risks, such as the Russian Federation, the USA and Canada, - commercial director of BTC.KZ LLP Aybek Umbetalyn complained about the current situation.
And indeed, around the same time, Vice Minister of Energy Aset Magauov spoke about the measures planned by the department to combat the electricity deficit. True, he focused not on legal, but on "gray" miners:
- Regarding miners, indeed, there is such a problem. The Atomic Energy Supervision Committee together with "KEGOC" carried out audits, identified 12 gray mining facilities in the Zhambyl region and a gray mining facility in the Pavlodar region. According to the results of control measures, all 13 of these facilities with a capacity of 120 megawatts were turned off. In addition, "KEGOC" will hold events during peak demand hours, they will not turn off the population, but will turn off mining companies in order to reset their consumption. We assume that these events will allow our winter heating period to pass smoothly...
How the remaining "gray" miners are doing is difficult to say for sure (especially since, as we already understand, no one knows their exact number). But legal companies were the first to reach out, and already in December of last year, the hosting company "Xive" stopped its work, the management of which said in farewell that they "felt like scapegoats."
It was followed by the closure of the Bitfufu cryptofarm, which operated with the support of one of the largest companies producing equipment for mining digital assets, Bitmain.
Was the government of Kazakhstan ready for such a turn of events? But the fact remains, and by the end of December 2021, the mining boom in Kazakhstan ended even faster than it began.
"Bitcoin miners are completely disappointed in Kazakhstan due to problems with electricity", - read the title of the material of the Bloomberg agency.
- At the moment, there is no potential for Bitcoin mining in Kazakhstan, Almas Chukin, partner of the Visor Kazakhstan investment company, summed up. Other experts are in solidarity with him, who believe that from now on our country will remain only a small player on the world market with a very limited circle of active crypto-companies and data centers.
By the way, similar problems occurred in other countries around the same time. At the end of November last year, Sweden made a call to ban mining on the territory of the EU. The authorities of this country have calculated that bitcoin mining there consumes electricity equivalent to the electricity needed for 200 thousand households. In the last days of December, it became known that new restrictions for cryptocurrency miners are being introduced in Iran, where 30 data centers are officially based. According to experts, in many ways, the situation in Iran is similar to that in Kazakhstan. After the migration of miners from China, only in the last six months there has been a sharp increase in the consumption of electrical energy in the country. As a result, by December in the Islamic republic there was a risk of electricity shortage this winter. The state-owned Iranian energy holding "Tavanir" said that authorized cryptomining centers should suspend their activities to prevent possible power outages.
A certain concern began to be shown in the Russian Federation, where the management of "Rossetei" announced a loss of hundreds of millions of rubles due to the intensified activity of miners and emphasized that "until legal and administrative measures are taken, the power grid companies will bear colossal losses."
In general, the problems are similar everywhere, and Kazakhstan, where the emerging energy crisis led to the rather quick liquidation of one of the cheapest places for cryptocurrency mining, is generally not something very unique.
So, cryptocurrency losses, estimated at 5 to 10% of quotations at the very beginning of January, became a completely predictable phenomenon, and the recent destabilization of the situation in Kazakhstan only became an additional catalyst of the general "bitcoin crisis", which significantly affected the attractiveness of this type of currency in general.
R.S. According to the previously planned legislative plans for this year, Kazakhstan could begin work on a draft law on digital mining, which was supposed to take into account the interests of all parties. But will they be able to reach it in the current conditions, when it is necessary to develop and adopt a comprehensive package of fundamental and much more relevant reforms in almost all spheres of the state's life - a big question."
