Geopolitics of cryptocurrency mining in Kazakhstan

ABSTRACT

In January 2022, a massive power blackout hit Central Asia, and especially the southern region of Kazakhstan after months of a huge rise in electricity consumption in the country and a few days after deadly demonstrations repressed by law enforcement. According to the Kazakhstani authorities, this huge power outage was due to cryptocurrency mining, an energy-intensive digital industry, highly developed within the country. This article aims to analyse and understand the geopolitical dynamics behind the fast and huge-scale development of the activity in Kazakhstan. The paper explores the geography of mining to and within the country, and relates it to the double territory’s divide, both climatic and energetic. Then, it analyses the political aspect of mining focusing on actors and networks of power involved in, sometimes illegal, crypto mining in Kazakhstan. Finally, this work discusses the future of the industry regarding the new regulation since 2023 and its limits.

KEYWORDS:

• Geopolitics
• power
• Kazakhstan
• mining
• cryptocurrency
• bitcoin

Acknowledgements

I would especially like to thank the team at IFEAC (Institut français d’études sur l’Asie centrale) in Bishkek, for their warm welcome, their advice as precious as the memories we share, and for all the efforts they make every day to help young researchers with their projects.

I would also like to thank the Central Asian Survey editorial team and the reviewers for the time they devoted to this article and their valuable suggestions.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Ethics statement

All the people mentioned by name in this article have given their permission for their words to be used in this academic work. The question has been asked during each interview made during this research fieldwork and they have been contacted again in the last steps of the edition for confirmation.

Notes

1 ‘Russia-led military alliance completes withdrawal from Kazakhstan’, Radio Free Europe/Radio Liberty, www.rferl.org/a/kazakhstan-csto-troops-withdrawal-security/31661294.html

2 Alexander Verbinyn, ‘Энергосистема Казахстана оказалась под угрозой из-за майнеров [Kazakhstan energy grid threatened by miners]’, Kazakhstanskaya Pravda, 11 November 2021. https://kazpravda.kz/n/energosistema-kazahstana-okazalas-pod-ugrozoy-iz-za-maynerov/

3 This process is called Proof of Work and needs computation power to secure the digital transactions ledger, the blockchain, unlike the Proof of Stake process (adopted by ether) which doesn’t require computation or any energy-intensive activity to operate.

4 Muir, Martha. ‘China’s exiled crypto machines fuel global mining boom’, Financial Times, 22 November 2021. https://www.ft.com/content/0dbe4f9f-a433-4288-858e-c4b852f4c340

5 Interviewed on 2 February 2023 and 17 May 2023, in Almaty (Kazakhstan).

6 A ‘mining farm’ refers to a physical facility hosting cryptocurrency mining computation power.

7 In October 2021, the used capacity of the farm was 130 MW to run 50,000 processors. See: B. Togabybayev. ‘ТОО «Казахстан Майнинг» [« Kazakhstan Mining » LCC]’. Forbes KZ, February 2022. https://forbes.kz/process/too_kazahstan_mayning/

8 Interviewed in February 2023 and May 2023 in Kazakhstan. The name has been changed at the interviewee’s request.

9 Interviewed in February 2023, in Astana (Kazakhstan). The name has been modified as requested by the interviewee.

10 Interviewed on 17 February 2023, in Astana (Kazakhstan). The name has been changed at the interviewee’s request.

11 Interviewed in spring 2023. As requested by the interviewee, their name, the exact date and the location of the interview is not shared.

12 Ministry of Energy of Kazakhstan, ‘Министерство энергетики сообщает о выявлении 13 майнинговых ферм с суммарной мощностью 202 МВт [Ministry of Energy reports the identification of 13 mining farms with a combined capacity of 202 MW]’, 21 February 2022. https://www.gov.kz/memleket/entities/energo/press/news/details/329670?lang=ru&ysclid=lheshrbplr92 67297

13 Financial Monitoring Agency of the Republic of Kazakhstan, ‘По пресечению незаконной майнинговой деятельности [On cracking down on illegal mining activities]’, 15 March 2022. https://www.gov.kz/memleket/entities/afm/press/news/details/340913?lang=ru

14 Mukhametgaly, Fariza. ‘Сотрудники МВД и КНБ задержали бандитов-майнеров [Interior Ministry and KNB officers detain mining gangsters]’, Polisia, 1 August 2022. https://polisia.kz/ru/sotrudniki-mvd-i-knb-zaderzhali-banditov-majnerov/

15 Financial Monitoring Agency of the Republic of Kazakhstan, ‘По пресечению незаконной майнинговой деятельности [On cracking down on illegal mining activities]’, 15 March 2022. https://www.gov.kz/memleket/entities/afm/press/news/details/340913?lang=ru

16 Anti-Corruption Agency of the Republic of Kazakhstan, ‘Деятельность "Серых" майнеров пресекли в Алматинской области [Gray miners cracked down in Almaty region]’, 21 February 2022. https://www.gov.kz/memleket/entities/anticorruption/press/news/details/330125?lang=ru

17 CAEPCO website: https://caepco.kz/en/aboutus/about-corporation.html

18 Interviewed in May 2023 in Kazakhstan. The name has been changed as requested by the interviewee.

19 ‘Во все многоквартирные дома Экибастуза подали тепло [Every Ekibastuz housing buildings are now receiving heat]’, KazTAG, 4 December 2022. https://kaztag.kz/ru/news/vo-vse-mnogokvartirnye-doma-ekibastuza-podali-teplo

20 Interview with Yulia, met on 29 May 2023, in Ekibastuz (Kazakhstan).

21 Order No. 407/NK of the Ministry of Digital Development ‘On Approval of the Rules on the Issue and Circulation of Secured Digital Assets’, 29 October 2020. https://adilet.zan.kz/eng/docs/V2000021546

22 Interviewed on 27 February 2023, in Astana (Kazakhstan).

23 Interviewed on 27 March 2023, in Almaty (Kazakhstan).

24 Interviewed on 21 February 2023, in Astana (Kazakhstan).

25 Interviewed on 7 June 2023, in Astana (Kazakhstan).

26 U.S. Department of the Treasury, ‘U.S. Treasury Designates Facilitators of Russian Sanctions Evasion’, 20 April 2022. https://home.treasury.gov/news/press-releases/jy0731

27 Interview with Dauren Karashev on 14 February 2024 in Astana, Kazakhstan.

28 Dayrabay Benkjanov, ‘Компании-майнеры пожаловались Токаеву на непосильную плату за цифровой майнинг [Mining companies have complained to Tokayev about the unaffordable cost of digital mining.]’, Digital Business, 28 September 2023. https://digitalbusiness.kz/2023-09-28/kompanii-mayneri-pozhalovalis-tokaevu-na-neposilnuyu-platu-za-tsifrovoy-mayning/

29 Olga Tonkonog, ‘Мининформации объяснило блокировку второй криптобиржи мира на территории Казахстана [Ministry of Information explains Kazakhstan’s blocking of the world’s second-largest cryptocurrency exchange platform]’, Kurskiv, 7 November 2023. https://kz.kursiv.media/2023-11-07/lgtn-coinbase/

30 Abdrahmanov, Rahimbek, and Kamshat Zhumagulova. 2023. ‘How Kazakhstan Helps Russia Bypass Western Sanctions’. https://thediplomat.com/2023/10/how-kazakhstan-helps-russia-bypass-western-sanctions/.

Additional information

Funding

This research fieldwork was partly made possible thanks to a mobility grant awarded by the IFEAC (Institut français d’études sur l’Asie centrale) [grant number AMI-6/2023].