Local cryptocurrency mining operators in Kazakhstan, the world’s third-largest market for Bitcoin mining hash rate, have raised concerns about high energy prices to the country’s president, Kassym-Jomart Tokayev. In an open letter signed by eight major mining operators, including BCD Company, TT TECH Limited, KZ Systems, AI Solutions, Green Power Solution, VerCom, and Kinur Invest, the executives stated that the Kazakh crypto mining industry is facing a “very distressful situation” due to the high energy prices.
According to the letter, all major industry players have suspended their activities and plan to completely cease their business in the Republic of Kazakhstan by the end of the year if the government does not take urgent measures. The executives believe that the high energy prices are derailing the government’s efforts to regulate the crypto industry, especially mining. They argue that the decision to raise taxes on energy for crypto miners has led to Kazakhstan losing its position among crypto mining leaders like the United States, Russia, and China, putting the entire industry at risk of extinction.
The country introduced taxes on digital mining on January 1, 2022, based on electricity consumption by mining entities. This move came as a response to growing national frustration with crypto miners’ undertaxed usage of the national power grid. However, even with the taxes in place, the cost of 1 kilowatt hour (kWh) of electricity for miners in Kazakhstan remains significantly lower than the average cost in the United States before any taxes are applied. This has led to concerns among local mining operators who argue that the high energy costs make it economically unviable to continue their operations.
Despite the challenges, the Kazakh government has managed to collect around 3.07 billion tenges ($7 million) in tax payments from crypto mining entities in 2022. However, the mining operators argue that this revenue is not sustainable if the industry collapses due to the high energy prices. They emphasize the urgent need for the government to take measures to address the situation and ensure the survival of the digital mining industry in Kazakhstan.
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The open letter from the mining operators highlights the importance of finding a balance between regulating the crypto industry and providing a conducive environment for businesses to thrive. While it is crucial to address concerns regarding energy consumption and tax obligations, it is equally important to consider the potential economic benefits that the crypto industry can bring to the country.
Kazakhstan has previously shown interest in exploring the potential of central bank digital currencies (CBDCs) and has established a regulatory agency dedicated to implementing CBDCs. This indicates the country’s recognition of the transformative power of blockchain technology and its desire to be at the forefront of the digital revolution. However, if the government does not take immediate action to address the concerns raised by local mining operators, it risks undermining its position as a crypto-friendly jurisdiction and may hinder the growth of the industry in the long run.
It is crucial for the Kazakh government to engage in open dialogue with industry stakeholders and find a solution that balances the need to regulate the crypto industry with the economic benefits it can provide. This may involve revisiting the tax structure for crypto miners and exploring ways to reduce energy costs to ensure the sustainability and growth of the industry.
In conclusion, the open letter from local crypto-mining operators in Kazakhstan highlights their concerns about high energy prices, which they argue are derailing the government’s efforts to regulate the industry and putting the entire mining industry at risk of extinction. The government must take urgent measures to address these concerns and find a balance between regulation and creating a conducive environment for the growth of the crypto industry. By doing so, Kazakhstan can maintain its position as a global crypto mining leader and reap the economic benefits that come with it.
