Cryptocurrency miners in Kazakhstan face a severe winter of power outages


Matthew Heard, a software engineer from San Jose, is concerned about 33 Bitcoin miners in Kazakhstan. Last week, their shutdown continued in an attempt by the National Grid to limit the power used by crypto miners.

“It’s been days since my devices got online,” he said. “For the past week, even if my devices are turned on, they can barely stay on.”

Kazakhstan is struggling to deal with the massive popularity of cryptocurrency mining, partly driven by a sharp rise in the value of cryptocurrencies this year and partly by a massive exodus of miners to its borders after China made mining illegal in May.

After three major power stations in the north of the country were closed in emergency situations last month, the state grid operator, Kegoc, warned that it would start rationing power to 50 government-registered crypto miners, and said they would “be disconnected first if the grid suffers from Problems.

Heard was founded in Kazakhstan in August and is run by Enegix, a company that leases space to operate crypto-mining machines.

He said his income dropped from an average of $1,200 worth of bitcoin a day to $800 in October, and last week his machines were only working 55 percent of the time. He said machine owners are not notified when shutdowns occur or when they will be back online.

The strain on the network from crypto mining operations has caused power outages in towns and villages across six regions of the country since October. The Department of Energy estimates that electricity demand has increased by 8 percent since the beginning of 2021 when mining companies began migrating from China, compared to annual growth of 1-2 percent in previous years.

According to data compiled by the Financial Times, at least 87,849 energy-intensive mining machines were brought to Kazakhstan from China.

Kazakh miner Xive.io, which charges foreign customers to connect their hardware at its sites, shut down a large crypto-mining farm on Wednesday and dismantled 2,500 mining rigs, after a power shortage made it impossible to operate.

Russian energy companies will step in to increase supply, but this is unlikely to be enough to stop crypto outages in Kazakhstan this winter. © Pavel Mikheyev / Reuters

Xive.io co-founder Deidar Bikbau chirp A video posted on November 24 from the latest Mining Rig, with the caption “Lots of work, [our] Hopes dashed.” In a live YouTube interview in October, he warned that the company was “under pressure” as it invested in building new containers and farms before realizing the power shortage.

Authorities and industry experts have blamed the power shortage on the sudden rise in the number of “gray miners”, companies and individuals working illegally in basements and abandoned factories, since the ban. The Department of Energy estimates it is drawing 1,200 megawatts of electricity from the power grid — twice as much as registered “white miners” consume.

And in October, Deputy Energy Minister Murat Zuribekov said that the response to the suppression of their activities “cannot be postponed any longer.”

While some miners are working legally, some are “moving very quickly and cutting corners,” said Denis Rossinovich, co-founder of the Maverick Group, a mining services company operating in Kazakhstan. He said these miners “will be targeted because they don’t have any working papers.”

To make up for the shortfall, from 2022, legitimate miners will have to pay an additional cost of 1 Kazakhstani tenge (US$0.0023) per kilowatt-hour, a move miners like Rosinovich view favorably, as it would “classify official miners”.

Until the start of the surcharge, Kazakhstan turned to Russia to increase its reserves, and entered into talks with the Moscow-based energy company Inter Rao to boost the national energy supply. On November 16, Alexander Novak, Russia’s deputy prime minister, announced that Russian companies would supply its southern neighbor with energy, saying that the deal “must be based on commercial terms.” He did not specify the exact cost.

It is unclear exactly when new supplies of energy from Russia will arrive in Kazakhstan, and it is unlikely that it will be enough to provide respite for crypto miners affected by the winter blackout. Alexandra Panina, chair of the Inter RAO board of directors, told Russia’s TASS news agency that the company could supply 600 megawatts “in an ideal scenario” with an estimate that the shortfall could reach 1 gigawatt.

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

Some overseas miners, such as Sydney-based Ricky Ho, who owns 40 machines in Kazakhstan that were also operated by Enegix, have begun moving the machines elsewhere despite the country’s 12 percent export tax on the value of the machines.

“Kazakhstan was one of the first places I sent miners to because it had cheap electricity, but they are all completely off now,” he said. He sent some of his hardware 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 Anchisky, professor of Eurasian studies at the University of Glasgow, said the government’s focus on “grey miners” is an attempt to cover up broader structural issues, such as the grid’s lack of maintenance and the inability to move power from the coal-rich north to the south. Kegoc has announced that it intends to carry out maintenance work on the affected stations and power lines.

“Sure, getting inputs of electricity from Russia can address the problem in the short term, but I think there is a huge discussion to be had about what kind of energy policy Kazakhstan actually has,” Anchisky said. He argued that the government believed that bitcoin mining would be profitable, but that it had not “been bothered to establish production capacity capable of meeting current or prospective demand.”

“This is one of the most energy-rich countries in Asia,” Anchisky said. “On paper, this should not have happened.”

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