Cryptocurrencies in Kazakhstan: ups and downs

Within a few last years Kazakhstan has confidently aspired to the top of the world leaders in terms of the total volume of crypto-transactions. One of the reasons for the cryptocurrency boom in this country was the state policy of stimulating the mining of digital money and increasing mining capacity in the country. Thanks to these efforts, as of the end of 2021, 6.17% of the total amount of cryptocurrencies available for mining was mined in Kazakhstan. Only three other countries mined more cryptocurrencies than Kazakhstan: China (65%), the United States of America (7.24%) and Russia (6.9%).

The government of Kazakhstan also helped to develop the crypto industry. For 4 years, the Ministry of Digital Development of the country has actively stimulated this market with the help of investments. The amount of funds spent by the Government of Kazakhstan on the development of the crypto industry amounted to about 300 billion tenge, or about 190 million dollars.

According to representatives of the Kazakhstan government, cryptocurrency mining stimulated three important economic parameters in the country. Firstly, the growth of investment provided jobs for citizens of Kazakhstan. Secondly, all mining operations were taxed at a rate of 15%. Accordingly, mining brought decent amounts to the budget of Kazakhstan. Thirdly, mining helped diversify the economy of Kazakhstan, which largely depends on oil production and sale.

The Kazakh authorities offered miners many advantages that no other country in the world has and provided a favorable legal environment for conducting operations with cryptocurrencies. The main one was the lower electricity price compared to other countries. While electricity costs in China vary depending on the season, electricity costs in Kazakhstan remain relatively stable throughout the year.

However, the development of mining in the country also had negative sides, which in a few years have significantly depleted the energy security of Kazakhstan, and which can no longer be ignored. In early December 2022, the legislators of Kazakhstan approved a bill that implements a corporate tax for miners, as well as introduces restrictions on energy consumption throughout the country. The law, called “On the regulation of digital Assets in Kazakhstan”, became one of three legislative acts related to cryptocurrencies approved by the lower house of the country. Now the bill is sent to the Senate for discussion and the next round of voting.

The power grids of Kazakhstan, most of which were inherited from Soviet times, began to collapse under heavy load. The current version of the bill allocates about 500 megawatts (MW) per year to miners. In addition, miners registered as official entrepreneurs will be able to buy electricity only if there is an excess of it. However, this volume may not be enough, because according to officials, crypto-miners in Kazakhstan consume about 1000-1200 MW of electricity per year. The 500 MW limit, in fact, is a guarantee for miners that not all operations will be stopped, said Azamat Akhmetzhanov, spokesman for the Kazakhstan Blockchain Association.

Another important point fixed in the new bill is related to the increase in corporate tax for miners. President Kassym-Jomart Tokayev signed a law on increasing the tax on electricity consumption by miners back in August, but it comes into force at the beginning of 2023. In addition, miners may be required to sell 3/4 of the mined cryptocurrency through official exchanges that have government accreditation and work permit in the country starting from 2024. Moreover, individuals conducting crypto transactions will also be subject to value added tax. Despite the fact that miners and owners of cryptocurrencies are unlikely to like such an initiative, experts believe that state exchanges will be able to quickly increase liquidity and enter the world tops of trading crypto platforms.

It is quite difficult to predict what the change in legislation regarding cryptocurrency mining in Kazakhstan will lead to. On the one hand, the authorities do not impose too strict prohibitions and total restrictions, but only try to bring the needs of the industry in line with the capabilities of the country. Local media report that many large miners have already begun to reduce the production of cryptocurrencies, and some even plan to leave Kazakhstan altogether. Anyway, Kazakhstan is a country that retains a huge potential in the field of cryptocurrencies. It remains to be hoped that the government of this country will continue to develop the digital currency market and will be able to find a solution that would suit all its participants.

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