“It’s a mess”: How crypto mining went from boom to bust in Kazakhstan
Bitcoin fugitives from China made the country a crypto power. Now, they’re being forced to flee — again.
Naubet Bisenov/Rest of World
By NAUBET BISENOV and MEAGHAN TOBIN
13 MARCH 2022 • ALMATY, KAZAKHSTAN
Many of the miners who fled China after the government banned cryptomining in 2021 relocated their operations to nearby Kazakhstan.
On the windswept, freezing steppes of northern Kazakhstan, a set of buildings can signal only one thing: cryptocurrency miners. Among them is BTC KZ, a company whose sprawling Ekibastuz facility powers a globe-spanning operation, serving clients as far away as Dubai and Reykjavik.
Times have changed, though. For the past five months, the complex has stood idle.
Inside, halls of ASIC mining units, entangled with cables, are attended by a few staff. Some of the equipment is sturdy enough to withstand temperatures of -15 degrees; other parts need heating to stay above freezing point. The system is drawing 1% of the electricity it would normally require, just enough to maintain a holding pattern.
When Rest of World visited in early February, Aibolat Balgozhin, the company’s chief power engineer, was helpless. “We have not been able to operate properly since October 13, when the first power cuts hit us,” he told Rest of World. “And we are kept in the dark as to when we would be able to work at full capacity or what solutions the power grid operator, KEGOC, is going to come up with.”
In September 2021, when China banned all cryptocurrency-related activity, it reshaped an industry for which it had provided a haven. Miners scrambled into crypto-friendly Kazakhstan, propelling the country into world’s second-biggest Bitcoin production base, by one estimate.
But six months later, the industry is already being pushed out. Facing civil unrest and blackouts on the electricity grid, the government has throttled the power supply of the miners it once welcomed. As it buckles under infighting and government pressure, Kazakhstan’s significant mining base is preparing to move on, industry players and experts say. Smaller players can either flee somewhere like Russia — a risky jurisdiction, whose hostile politics would imply another temporary home — or, for bigger outfits, swallow higher costs to join the swelling ranks in the U.S., where the mining industry is clearly beginning to concentrate.
“It’s a mess, essentially,” said Alejandro De La Torre, previously vice president at Bitcoin mining pool Poolin, “a big mess.”
On the windswept, freezing steppes of northern Kazakhstan, a set of buildings can signal only one thing: cryptocurrency miners. Among them is BTC KZ, a company whose sprawling Ekibastuz facility powers a globe-spanning operation, serving clients as far away as Dubai and Reykjavik.
Times have changed, though. For the past five months, the complex has stood idle.
Inside, halls of ASIC mining units, entangled with cables, are attended by a few staff. Some of the equipment is sturdy enough to withstand temperatures of -15 degrees; other parts need heating to stay above freezing point. The system is drawing 1% of the electricity it would normally require, just enough to maintain a holding pattern.
When Rest of World visited in early February, Aibolat Balgozhin, the company’s chief power engineer, was helpless. “We have not been able to operate properly since October 13, when the first power cuts hit us,” he told Rest of World. “And we are kept in the dark as to when we would be able to work at full capacity or what solutions the power grid operator, KEGOC, is going to come up with.”
In September 2021, when China banned all cryptocurrency-related activity, it reshaped an industry for which it had provided a haven. Miners scrambled into crypto-friendly Kazakhstan, propelling the country into world’s second-biggest Bitcoin production base, by one estimate.
But six months later, the industry is already being pushed out. Facing civil unrest and blackouts on the electricity grid, the government has throttled the power supply of the miners it once welcomed. As it buckles under infighting and government pressure, Kazakhstan’s significant mining base is preparing to move on, industry players and experts say. Smaller players can either flee somewhere like Russia — a risky jurisdiction, whose hostile politics would imply another temporary home — or, for bigger outfits, swallow higher costs to join the swelling ranks in the U.S., where the mining industry is clearly beginning to concentrate.
“It’s a mess, essentially,” said Alejandro De La Torre, previously vice president at Bitcoin mining pool Poolin, “a big mess.”
Widespread protests over the rising price of fuel rocked Kazakhstan in January of this year.
Valery Sharifulin/TASS/Getty Images
Kazakhstan’s crypto industry opened up after a crash in the value of Bitcoin over late 2019. Though cryptocurrency isn’t recognized as legal tender, miners’ business was encouraged; in his 2020 state-of-the-nation address, President Kassym-Jomart Tokayev urged the country to attract $1.2 billion worth of crypto infrastructure investment within five years, before other countries beat them to it. Attracted by cheap electricity and a lack of regulation, the industry in Kazakhstan began to flourish.
Things changed in late 2021. Power blackouts grew more frequent, and peak electricity demand was shown to have jumped in the first three quarters — roughly 1,500 megawatts, a year-on-year leap of 7% — something the country’s Ministry of Energy blamed on the ballooning crypto industry. In October, the Kazakhstan government announced it would cut off their power supply.
Taxes followed. From January 1, it imposed a tax of one tenge (0.20 cents) per kilowatt-hour on registered miners; by February, legislators were already pushing a proposal to increase it tenfold to 10 tenge per kWh. The same month, digital development minister, Bağdat Musin, labeled unregistered mining an “economic crime.”
“We went from hero to zero,” said Denis Rusinovich, co-founder of the industry lobby Cryptocurrency Mining Group (CMG), who has been involved in building the mining industry in Kazakhstan since 2017.
Some of the country’s biggest crypto miners have already fled for greener pastures. BitFuFu, a mining company backed by Chinese mining machine giant Bitmain, simply abandoned an estimated 80,000 mining machines at the end of 2021 for plans to start over in the U.S. After China’s crackdown, Hong Kong–based BIT Mining had said it was moving 3,000 mining machines into the country from China and would invest more than $9 million in a 100 MW facility. In February, however, the company announced that due to the “unstable local power supply” it was abandoning those plans for an even bigger facility — in Ohio.
The real cause of the increasing blackouts, according to market analysts, is not the miners. It’s crumbling power infrastructure from the Soviet era, along with a cronyish system of repair contracts that tend to go to companies linked to lower levels of government, even if they’re procured via an open tender. Power plants are also allowed to reserve generation capacities for their own needs at reduced charges — which can go to companies in favorable private deals and reduce the amount available for distribution.
“Our Energy Ministry is capable of only scheming, not doing systemic work,” Aset Nauryzbayev, an economist and former chairman of KEGOC’s board, told Rest of World. “It is an omission by the Energy Ministry, which has failed to foresee the problems in the country’s power engineering sector and build new capacities. It now needs to add an additional 2–3 gigawatts of power capacity.”
The government has acknowledged the wear on its electricity distribution systems. At a government meeting in May 2021, President Kassym-Jomart Tokayev said that power generation facilities had been in operation more than 40 years and that age-related damage had led to 4,458 technological breakdowns in 2020.
Still, official figures say that miners accounted for the entire electricity demand increase and more: about 700 MW of power was consumed by those registered with the government (“white” miners), with more than double that drawn by unregistered “gray” miners. Rest of World has been unable to confirm the government’s figures, since the number of unregistered miners is difficult to trace.
The blame game has divided the industry itself. White miners point at gray miners; both accuse the government of scapegoating them for electricity supply problems, using them to attempt to head off unrest.
“It used to be a good supplementary business. But it’s becoming harder to stay in crypto, especially with the blackouts."
Kuanysh is what Kazakhs call a “little hamster,” a small-scale gray miner. In Shymkent, an industrial center planted among the river valleys of southern Kazakhstan, Kuanysh — who asked to be referred to by an alias because he feared investigation — hoards 50 Nvidia GeForce RTX 3090 graphics processing units, which hum steadily inside his family’s run-down shed. The stacked processors crunch algorithms to mine around $750 of the cryptocurrency Ethereum per week — an income stream that helps him add to his family home, run his car, and provide for his family. It’s a volatile business, but he has ridden the waves.
“I started mining in 2016, first with Bitcoin,” he told Rest of World. “It used to be a good supplementary business. But it’s becoming harder to stay in crypto, especially with the blackouts.”
In February, Mahsat Quandykov, a division head of the Almaty City Department for Economic Investigations, was given the near-impossible task of tracking down gray miners like Kuanysh and forcing them to register.
Illegal miners can operate covertly in densely populated urban areas, camouflaged by general use. Operatives from Quandykov’s department are called up by regional power supply companies to investigate and document power surges they detect in the system. The department also relies on public tipoffs; a WhatsApp hotline has been implemented, along with the offer of monetary rewards. On Facebook, the digital minister has implored people to report on any suspicious mining-adjacent activity.
“Since power shortages have become an issue, we have managed to track down a tiny 150-kilowatt mining farm in a greenhouse, only because we were tipped off,” Quandykov said to Rest of World in early February.
Just a few weeks later, the department ramped up its investigations. On the 21st, the government announced that mobile search groups uncovered illegal mining operations with a total capacity of 202 MW, including 4 MW in Shymkent, the home of “hamster” Kuanysh. Kuanysh, so far, has escaped notice.
In recent weeks, the government itself is beginning to draw public attention. Media figure Arman Shurayev, a self-styled crusader against corruption, accused the ex-speaker of the Kazakh Parliament’s lower chamber, Nurlan Nigmatulin, of running a gray crypto farm under the guise of a ferroalloy plant. Local media reported that the production — 57,000 tonnes of ferroalloys a year, with a total power capacity of 64 MW — consumed more than 10 times the power that other plants of that size, according to Rest of World estimates.
Amid all the turmoil, analysts observe that the U.S. has consolidated its position as the leading source of cryptocurrency creation over the past year. But it’s impractical for many miners to relocate so far, especially smaller operators. Many are looking to Russia, said the CMG’s Rusinovich, for the same reasons they came to Kazakhstan from China: cheap power and close geographic proximity. But even apart from geopolitical turmoil, though, “there’s not much [power] capacity in Russia,” Rusinovich warns. “It’s not like everyone was just waiting for Kazakhstan’s miners to come in.”
It’s not enough to deter those still inside Kazakhstan. “If this situation lasts for another one-and-a-half to two months, we will think of packing up,” the founder of BTC KZ, Din-mukhammed Matkenov, told Rest of World in mid-January. “We’ve already received offers to relocate to Russia, but we are also considering Argentina and Chile as possible options.”
As of early March, their electricity still hasn’t been restored. The Ekibastuz facility remains dark.
Kazakhstan’s crypto industry opened up after a crash in the value of Bitcoin over late 2019. Though cryptocurrency isn’t recognized as legal tender, miners’ business was encouraged; in his 2020 state-of-the-nation address, President Kassym-Jomart Tokayev urged the country to attract $1.2 billion worth of crypto infrastructure investment within five years, before other countries beat them to it. Attracted by cheap electricity and a lack of regulation, the industry in Kazakhstan began to flourish.
Things changed in late 2021. Power blackouts grew more frequent, and peak electricity demand was shown to have jumped in the first three quarters — roughly 1,500 megawatts, a year-on-year leap of 7% — something the country’s Ministry of Energy blamed on the ballooning crypto industry. In October, the Kazakhstan government announced it would cut off their power supply.
Taxes followed. From January 1, it imposed a tax of one tenge (0.20 cents) per kilowatt-hour on registered miners; by February, legislators were already pushing a proposal to increase it tenfold to 10 tenge per kWh. The same month, digital development minister, Bağdat Musin, labeled unregistered mining an “economic crime.”
“We went from hero to zero,” said Denis Rusinovich, co-founder of the industry lobby Cryptocurrency Mining Group (CMG), who has been involved in building the mining industry in Kazakhstan since 2017.
Some of the country’s biggest crypto miners have already fled for greener pastures. BitFuFu, a mining company backed by Chinese mining machine giant Bitmain, simply abandoned an estimated 80,000 mining machines at the end of 2021 for plans to start over in the U.S. After China’s crackdown, Hong Kong–based BIT Mining had said it was moving 3,000 mining machines into the country from China and would invest more than $9 million in a 100 MW facility. In February, however, the company announced that due to the “unstable local power supply” it was abandoning those plans for an even bigger facility — in Ohio.
The real cause of the increasing blackouts, according to market analysts, is not the miners. It’s crumbling power infrastructure from the Soviet era, along with a cronyish system of repair contracts that tend to go to companies linked to lower levels of government, even if they’re procured via an open tender. Power plants are also allowed to reserve generation capacities for their own needs at reduced charges — which can go to companies in favorable private deals and reduce the amount available for distribution.
“Our Energy Ministry is capable of only scheming, not doing systemic work,” Aset Nauryzbayev, an economist and former chairman of KEGOC’s board, told Rest of World. “It is an omission by the Energy Ministry, which has failed to foresee the problems in the country’s power engineering sector and build new capacities. It now needs to add an additional 2–3 gigawatts of power capacity.”
The government has acknowledged the wear on its electricity distribution systems. At a government meeting in May 2021, President Kassym-Jomart Tokayev said that power generation facilities had been in operation more than 40 years and that age-related damage had led to 4,458 technological breakdowns in 2020.
Still, official figures say that miners accounted for the entire electricity demand increase and more: about 700 MW of power was consumed by those registered with the government (“white” miners), with more than double that drawn by unregistered “gray” miners. Rest of World has been unable to confirm the government’s figures, since the number of unregistered miners is difficult to trace.
The blame game has divided the industry itself. White miners point at gray miners; both accuse the government of scapegoating them for electricity supply problems, using them to attempt to head off unrest.
“It used to be a good supplementary business. But it’s becoming harder to stay in crypto, especially with the blackouts."
Kuanysh is what Kazakhs call a “little hamster,” a small-scale gray miner. In Shymkent, an industrial center planted among the river valleys of southern Kazakhstan, Kuanysh — who asked to be referred to by an alias because he feared investigation — hoards 50 Nvidia GeForce RTX 3090 graphics processing units, which hum steadily inside his family’s run-down shed. The stacked processors crunch algorithms to mine around $750 of the cryptocurrency Ethereum per week — an income stream that helps him add to his family home, run his car, and provide for his family. It’s a volatile business, but he has ridden the waves.
“I started mining in 2016, first with Bitcoin,” he told Rest of World. “It used to be a good supplementary business. But it’s becoming harder to stay in crypto, especially with the blackouts.”
In February, Mahsat Quandykov, a division head of the Almaty City Department for Economic Investigations, was given the near-impossible task of tracking down gray miners like Kuanysh and forcing them to register.
Illegal miners can operate covertly in densely populated urban areas, camouflaged by general use. Operatives from Quandykov’s department are called up by regional power supply companies to investigate and document power surges they detect in the system. The department also relies on public tipoffs; a WhatsApp hotline has been implemented, along with the offer of monetary rewards. On Facebook, the digital minister has implored people to report on any suspicious mining-adjacent activity.
“Since power shortages have become an issue, we have managed to track down a tiny 150-kilowatt mining farm in a greenhouse, only because we were tipped off,” Quandykov said to Rest of World in early February.
Just a few weeks later, the department ramped up its investigations. On the 21st, the government announced that mobile search groups uncovered illegal mining operations with a total capacity of 202 MW, including 4 MW in Shymkent, the home of “hamster” Kuanysh. Kuanysh, so far, has escaped notice.
In recent weeks, the government itself is beginning to draw public attention. Media figure Arman Shurayev, a self-styled crusader against corruption, accused the ex-speaker of the Kazakh Parliament’s lower chamber, Nurlan Nigmatulin, of running a gray crypto farm under the guise of a ferroalloy plant. Local media reported that the production — 57,000 tonnes of ferroalloys a year, with a total power capacity of 64 MW — consumed more than 10 times the power that other plants of that size, according to Rest of World estimates.
Amid all the turmoil, analysts observe that the U.S. has consolidated its position as the leading source of cryptocurrency creation over the past year. But it’s impractical for many miners to relocate so far, especially smaller operators. Many are looking to Russia, said the CMG’s Rusinovich, for the same reasons they came to Kazakhstan from China: cheap power and close geographic proximity. But even apart from geopolitical turmoil, though, “there’s not much [power] capacity in Russia,” Rusinovich warns. “It’s not like everyone was just waiting for Kazakhstan’s miners to come in.”
It’s not enough to deter those still inside Kazakhstan. “If this situation lasts for another one-and-a-half to two months, we will think of packing up,” the founder of BTC KZ, Din-mukhammed Matkenov, told Rest of World in mid-January. “We’ve already received offers to relocate to Russia, but we are also considering Argentina and Chile as possible options.”
As of early March, their electricity still hasn’t been restored. The Ekibastuz facility remains dark.
Naubet Bisenov is a freelance journalist and researcher based in Nur-Sultan (Astana), Kazakhstan.
Meaghan Tobin is a reporter at Rest of World.
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