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Cryptocurrency miners in Kazakhstan face a severe winter of power cuts

Matthew Heard, a software engineer from San Jose, is worried about his 33 bitcoin miners in Kazakhstan. Over the past week, they have repeatedly shut down the national grid to limit the power used by cryptocurrency miners.

“It’s been days since my machine came online,” he said. “In the last week, even when my machines work, they barely work.”

Kazakhstan has been struggling to cope with the huge popularity of cryptocurrency mining, fueled this year in part by a sharp increase in the value of cryptocurrencies and in part by a massive exodus of cryptominers. miners to its border after China made illegal mining in May.

After three major power plants in the north of the country had an emergency shutdown last month, the state’s grid operator, Kegoc, has warned that it will start allocating power to 50 miners. electronics have registered with the government and said they will be “disconnected first” if the grid goes down.

Heard was founded in Kazakhstan in August, and his machines are managed by Enegix, a company that rents out space to run cryptocurrency miners.

He said his income dropped from an average of $1,200 a day worth of Bitcoin to $800 in October, and in the past week his machine has only been up 55% of the time. Machine owners are not notified when the machine will be down or when they will be back online, he said.

The pressure on the network caused by cryptocurrency mining has caused power outages in towns and villages across six regions of the country since October. The Energy Department estimates electricity demand. has grown by 8% since the beginning of 2021 when miners started to migrate out of China, compared with 1-2% annual growth in previous years.

Based on data As gathered by the FT, at least 87,849 energy-intensive mining machines have been brought to Kazakhstan from China.

Kazakhstan’s mining company Xive.io, which charges overseas customers to plug their machines in at their sites, shut down a large crypto mining farm on Wednesday and dismantled 2,500 mining rigs , after the power shortage renders its operation inoperable.

power line

Russian energy companies will join to increase supply, but this will not be enough to prevent a blackout to crypto operations in Kazakhstan this winter © Pavel Mikheyev/Reuters

Didar Bekbau .’s Xive.io Co-Founder tweeted a video on November 24 of the last mining rigs being disassembled, captioned “Lots of work, [our] ruined hopes”. In one live streaming interview on YouTube in October, he warned that the company was “under some stress” because it had invested in building new containers and farms before becoming aware of the energy shortage.

Authorities and industry experts have blamed power shortages on “gray miners”, companies and individuals operating illegally out of basements and abandoned factories. from the ban. The Department of Energy estimates they are pulling 1200MW of electricity from the grid – twice as much as registered “white miners”.

In October, Deputy Energy Minister Murat Zhurebekov said a response to crack down on their activities “cannot be delayed any longer”.

Denis Rusinovich, co-founder of Maverick Group, a mining services company operating in Kazakhstan, said that while some miners were operating legally, some “moved too quickly and were cut off “. These miners “will be targeted because they don’t have any paperwork,” he said.

To make up for the shortfall, from 2022, legal miners will have to pay a surcharge of 1 Kazakh tenge ($0.0023) per kWh, a move that miners like Rusinovich see positively polarity, as it would “classify the official miners”.

Until the surcharge came into effect, Kazakhstan turned to Russia to increase its reserves, starting negotiations with Moscow-based energy company Inter RAO to boost the national energy supply. On November 16, Russian Deputy Prime Minister Alexander Novak announced that Russian companies would supply electricity to the southern neighbour, saying that the agreement “must be based on commercial terms”. He did not specify an exact cost.

It is unclear exactly when new energy supplies from Russia will arrive in Kazakhstan, and it is unlikely to be enough to provide respite for crypto miners affected by the winter power cuts. Inter RAO board president Alexandra Panina told TASS, a Russian news agency, that the company could supply 600MW, “in an ideal scenario” while estimating that the shortfall could reach as much as 600MW. 1GW.

The Department of Energy and Inter RAO did not respond to requests for comment.

Some overseas miners like Sydney-based Ricky Hoo, which owns 40 machines in Kazakhstan also managed by Enegix, have started moving machines elsewhere despite the country’s 12% export tax on value. of the machine.

“Kazakhstan was one of the first places I sent miners because it had cheap electricity, but they all turned off completely,” he said. He sent some of his machines to Russia, the third largest mining country after Kazakhstan.

The cuts also raise new concerns about the long-term sustainability of Kazakhstan’s energy infrastructure. Luca Anceschi, Professor of Eurasian Studies at the University of Glasgow, says the government’s focus on “gray miners” is an attempt to tackle broader structural problems, such as such as the lack of grid maintenance and the inability to transport electricity from the coal-rich north to the south. Kegoc has announced that it intends to carry out maintenance work on damaged plants and power lines.

“Certainly having power input from Russia can solve this problem in the short term, but I think there needs to be a big discussion about what kind of energy policy Kazakhstan is really pursuing,” Anceschi said. He argued that the government thought Bitcoin mining would be profitable, but it did not “preoccupy create productive capacity that can actually meet current or future demand”.

“It is one of the most energy-rich countries in Asia,” says Anceschi. “In theory, this shouldn’t happen.”

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