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Thursday, December 2, 2021

Kazakhstan’s crypto miners face a severe winter with blackouts

Matthew Heard, a software engineer from San Jose, is worried about his 33 Bitcoin mining machines in Kazakhstan. In the past week, the National Grid tried to limit the electricity used by crypto miners, and they kept being shut down.

“My machine hasn’t been online for several days,” he said. “In the last week, even if my machines started up, they almost never continued to run.”

Kazakhstan has been struggling to cope with the huge popularity of crypto mining, this year partly because of the sharp rise in the value of cryptocurrencies, and partly because of the massive migration of miners to its borders after China made mining illegal in May.

After the emergency shutdown of three main power plants in the northern part of the country last month, the national grid operator Kegoc warned that it would start allocating power to 50 crypto miners registered with the government and said they would “disconnect first” . “If there is a problem with the grid.

Heard was established in Kazakhstan in August. His machine is managed by Enegix, a company that rents out space to run crypto mining machines.

He said that his income dropped from an average daily value of $1,200 in Bitcoin to $800 in October, and in the past week, his machine was only on 55% of the time. He said that machine owners will not be notified during downtime or when they will be back online.

Since October, the pressure on the power grid caused by encrypted mining operations has caused power outages in towns and villages in six regions of the country. The Ministry of Energy estimates that since mining companies started migrating from China in early 2021, electricity demand has increased by 8%, compared with the annual growth rate of 1-2% in previous years.

According to data collected by the British Financial Times, at least 87,849 high-energy-consuming mining machines were shipped from China to Kazakhstan.

Kazakh mining company Xive.io charged overseas customers for plugging in machines on its site. The company closed a major crypto mining farm on Wednesday and dismantled 2,500 mining machines after power shortages made it impossible to operate.

power line

Russian energy companies will step in to increase supply, but this is unlikely to be enough to prevent a blackout in Kazakhstan’s crypto business this winter © Pavel Mikheyev/Reuters

Didar Bekbau, co-founder of Xive.io Tweet The video of the last batch of mining machines being dismantled on November 24. The title is “A lot of work, [our] Hope is dashed”. In one Live interview In October last year, he warned on YouTube that the company was “under some pressure” because it had invested in new containers and farms before it realized the energy shortage.

Since the promulgation of the ban, authorities and industry experts have attributed the power shortage to the surge in the number of illegal operations of “gray miners”, companies and individuals in basements and abandoned factories. The Department of Energy estimates that they have drawn 1,200 megawatts of electricity from the grid—twice as many as registered “white miners”.

In October, Murat Zhurebekov, the Deputy Minister of Energy, stated that “there can be no further delay” in responding to the campaign against them.

Denis Rusinovich, co-founder of Maverick Group, a mining services company operating in Kazakhstan, said that although some miners operate legally, some “act too fast and cut corners”. He said that these miners “will be targeted because they do not have any paperwork.”

In order to make up for the shortage, from 2022, legal miners must pay a surcharge of 1 Kazakhstan tenge (0.0023 USD) per kWh. Miners such as Rusinovich are positive about this because it will “classify official miners”.

Before the start of the surcharge, Kazakhstan has turned to Russia to increase its reserves and negotiated with the Moscow-based energy company Inter RAO to strengthen the country’s energy supply. On November 16, Russian Deputy Prime Minister Alexander Novak announced that the Russian company would supply electricity to its southern neighbors, stating that the transaction “must be based on commercial terms”. He did not specify the exact cost.

It is not clear when the new energy supply from Russia will reach Kazakhstan, and it is unlikely that it will be enough to provide a respite for crypto miners affected by the winter power outage. Alexandra Panina, chairman of Inter RAO’s board of directors, told Russian news agency TASS that the company can supply 600MW “under ideal conditions”, and estimates that the shortage may reach 1GW.

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

Some overseas miners, such as Sydney-based Ricky Hoo, have 40 machines in Kazakhstan that are also managed by Enegix. Although the country imposes a 12% export tax on the value of the machines, they have begun to transfer the machines to other places. .

“Kazakhstan was one of the first places I sent miners because of cheap electricity, but now all of them are completely closed,” he said. He has sent some of his machines to Russia, which is the third largest mining country after Kazakhstan.

The cuts have also raised new concerns about the long-term sustainability of Kazakhstan’s energy infrastructure. Luca Anceschi, Professor of Eurasian Studies at the University of Glasgow, said the government’s focus on “gray miners” is to cover up broader structural issues, such as the lack of maintenance of the power grid and the inability to transport electricity from the coal-rich north to the south. Kegoc has announced its intention to carry out maintenance work on damaged factories and power lines.

“Of course, importing electricity from Russia can solve this problem in the short term, but I think there needs to be a big discussion about what energy policy Kazakhstan actually adopts,” Anseski said. He argued that the government believes that Bitcoin mining will be profitable, but it has not “worried about creating production capacity that can truly meet existing or potential demand.”

“This is one of the most energy-rich countries in Asia,” Anseski said. “On paper, this shouldn’t happen.”

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