The Kazakh government is considering a three-pronged proposal designed to make cryptocurrency miners pay much more to work in the country, which could make Kazakhstan less attractive to the industry.
On February 4, Kazakhstan’s First Vice Minister of Finance Marat Sultangaziyev proposed a price increase from $0.0023 per kWh to $0.01 (an increase of around 335%) specifically for cryptocurrency miners. He also proposed to impose a tax on every single video card (GPU) and every piece of equipment needed for cryptocurrency mining. He compared the video card tax to how casinos are taxed for every table they run, whether or not the table is active.
The third part of his proposal was to remove mining equipment from value-added tax (VAT) exemption.
Bitcoin mining requires the use of special hardware to perform the mathematical calculations required to create new blocks on the blockchain. Larger mining operations include over 10,000 mining rigs, including ASICs (application-specific integrated circuits), GPUs, racks, cooling units, and related facilities.
Until political unrest forced the government to restrict internet access last month, Kazakhstan became one of the most popular destinations for cryptocurrency miners following China’s mining ban last summer. Around January 5, the hash rate of the Bitcoin network dropped by 13.4% on the day from approximately 205 exahashes per second (EH/s) to 177 EH/s due to a brief outage in Kazakhstan.
BIT Mining, a major Bitcoin mining company that moved from China to Kazakhstan last July, said in January that political unrest would not force it to move its operations elsewhere. However, this was before capacity and tax increases were proposed.
The cheap cost of electricity and proximity to China are attracting miners fleeing Chinese authorities amid repression in the country. This has resulted in Kazakhstan becoming the second largest producer of Bitcoin hash power after the US, producing about 18% of the network’s hash rate as of August 2021, according to the University of Cambridge. It may become less desirable for new and existing miners to call it their base of operations if crippling tax proposals go into effect.
It should also be noted that Kazakhstan has been struggling with energy supply problems since the end of last year, around the same time that cryptocurrency miners were pouring in from China. The country has seen an 8% increase in domestic electricity consumption through 2021, prompting the government to consider building a nuclear power plant to ease the load on the power grid and lower energy costs.
Related: All Eyes on Asia: New Crypto Chapter After China
Inexpensive electricity seems to be the single most important factor that attracts miners. Cointelegraph reported on January 27 that the U.S. cannot provide the cheapest electricity and therefore “cannot hold the mining champion title for long.” Depriving Kazakhstani miners of this advantage could mean a collapse for the country’s aspiration to get $1.5 billion from miners over the next 5 years.
The Kazakh government is considering a three-pronged proposal designed to make cryptocurrency miners pay much more to work in the country, which could make Kazakhstan less attractive to the industry.
On February 4, Kazakhstan’s First Vice Minister of Finance Marat Sultangaziyev proposed a price increase from $0.0023 per kWh to $0.01 (an increase of around 335%) specifically for cryptocurrency miners. He also proposed to impose a tax on every single video card (GPU) and every piece of equipment needed for cryptocurrency mining. He compared the video card tax to how casinos are taxed for every table they run, whether or not the table is active.
The third part of his proposal was to remove mining equipment from value-added tax (VAT) exemption.
Bitcoin mining requires the use of special hardware to perform the mathematical calculations required to create new blocks on the blockchain. Larger mining operations include over 10,000 mining rigs, including ASICs (application-specific integrated circuits), GPUs, racks, cooling units, and related facilities.
Until political unrest forced the government to restrict internet access last month, Kazakhstan became one of the most popular destinations for cryptocurrency miners following China’s mining ban last summer. Around January 5, the hash rate of the Bitcoin network dropped by 13.4% on the day from approximately 205 exahashes per second (EH/s) to 177 EH/s due to a brief outage in Kazakhstan.
BIT Mining, a major Bitcoin mining company that moved from China to Kazakhstan last July, said in January that political unrest would not force it to move its operations elsewhere. However, this was before capacity and tax increases were proposed.
The cheap cost of electricity and proximity to China are attracting miners fleeing Chinese authorities amid repression in the country. This has resulted in Kazakhstan becoming the second largest producer of Bitcoin hash power after the US, producing about 18% of the network’s hash rate as of August 2021, according to the University of Cambridge. It may become less desirable for new and existing miners to call it their base of operations if crippling tax proposals go into effect.
It should also be noted that Kazakhstan has been struggling with energy supply problems since the end of last year, around the same time that cryptocurrency miners were pouring in from China. The country has seen an 8% increase in domestic electricity consumption through 2021, prompting the government to consider building a nuclear power plant to ease the load on the power grid and lower energy costs.
Related: All Eyes on Asia: New Crypto Chapter After China
Inexpensive electricity seems to be the single most important factor that attracts miners. Cointelegraph reported on January 27 that the U.S. cannot provide the cheapest electricity and therefore “cannot hold the mining champion title for long.” Depriving Kazakhstani miners of this advantage could mean a collapse for the country’s aspiration to get $1.5 billion from miners over the next 5 years.
