Kazakhstan, the world’s third-largest market in terms of Bitcoin mining hash rate, is facing a crisis as major cryptocurrency mining operators voice their concerns over soaring energy prices. In an open letter addressed to President Kassym-Jomart Tokayev, eight prominent mining companies, including BCD Company, TT TECH Limited, KZ Systems, AI Solutions, Green Power Solution, VerCom, and Kinur Invest, have painted a grim picture of the industry’s future.
The letter underscores the dire state of the Kazakh crypto mining industry, with all major players suspending their operations and planning complete shutdowns by year-end due to the exorbitant energy costs. This alarming situation is seen as a significant setback to the government’s efforts to regulate the crypto industry, especially mining.
The core issue, as highlighted in the letter, stems from the government’s decision to impose higher taxes on energy consumption by crypto miners. These taxes have already caused Kazakhstan to lose its competitive edge to countries like the United States, Russia, and China, pushing the industry to the brink of extinction. The letter warns that without swift action, the digital mining industry in Kazakhstan could cease to exist.
The tax regime on digital mining was introduced on January 1, 2022, and is based on the electricity consumption of mining entities. Even at its highest rate, 1 kilowatt hour (kWh) of taxed electricity in Kazakhstan costs miners approximately $0.067, significantly lower than the pre-tax average of $0.12 per kWh in the United States. The government reportedly collected around 3.07 billion tenges ($7 million) in tax payments from crypto mining entities in 2022.
While the taxation was initially aimed at addressing concerns about under-taxed power consumption by crypto miners, it has inadvertently led to a crisis that threatens the entire industry. The letter urges the government to take immediate measures to rectify the situation and ensure the survival of the digital mining sector in Kazakhstan.
As the country grapples with the challenge posed by crypto miners, it remains to be seen how the government will respond to the urgent plea from these major industry players and whether they can find a balanced solution to protect both the industry and the national interest.
