Crypto miners in Kazakhstan face harsh winter of blackouts

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Matthew Heard, a software engineer from San Jose, is worried about his 33 bitcoin mining machines in Kazakhstan. Over the past week, they continued to be shut down in an attempt by the national grid to limit the power used by crypto miners.

“My machines haven’t been online for days,” he said. “Over the past week, even though my machines turn on, they barely stay on.”

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

After the emergency shutdown of three large power plants in the north of the country last month, the public grid operator, Kegoc, warned it would start rationing the electricity of the 50 crypto miners who are registered with the government , and said they would be “disconnected first”. ”If the network suffers from problems.

Heard moved to Kazakhstan in August and its machines are run by Enegix, a company that rents space to run crypto mining machines.

He said his earnings had gone from an average worth of $ 1,200 in Bitcoin per day to $ 800 in October, and that over the past week his machines have only been running 55 percent of the time. Machine owners are not notified when shutdowns are going to occur or when they will come back online, he said.

Pressure on the grid caused by crypto mining operations has caused blackouts in towns and villages in six regions of the country since October. The Energy Ministry estimates that electricity demand has increased by 8% since the start of 2021, when mining companies began to migrate from China, compared to annual growth of between 1 and 2% in previous years.

According to data collected by the FT, at least 87,849 energy-intensive mining machines have been imported from China to Kazakhstan.

Kazakh mining company Xive.io, which instructs foreign customers to plug in their machines to its sites, shut down a major crypto mining farm on Wednesday and dismantled 2,500 mining rigs, after power outages made it dead. unsustainable operation.

Russian energy companies will step in to boost supply, but that’s unlikely to be enough to stop power outages for crypto operations in Kazakhstan this winter © Pavel Mikheyev / Reuters

Xive.io co-founder Didar Bekbau tweeted on November 24 a video of the latest mining rigs being taken down, with the caption “So much work, [our] hopes are ruined ”. In a live YouTube interview in October, he warned the company was “under some stress” as it invested in building new containers and farms before realizing energy shortages.

Authorities and industry experts have blamed the power shortages on an increase in the number of ‘gray miners’, businesses and individuals operating illegally in basements and abandoned factories, since l ‘prohibition. The Department of Energy estimates they are siphoning 1,200 MW of electricity from the grid, twice as much as the registered “white miners”.

In October, Deputy Energy Minister Murat Zhurebekov said that a response aimed at cracking down on their activities “can no longer be delayed.”

Denis Rusinovich, co-founder of Maverick Group, a mining services company that operates in Kazakhstan, said that while some miners are operating legally, some “have gone too fast and cut corners.” These miners “will be targeted because they have no paperwork,” he said.

To compensate for the shortages, from 2022, legitimate miners will have to pay an additional 1 Kazakhstani tenge ($ 0.0023) per kWh, a move miners like Rusinovich welcome because it “will classify miners. official ”.

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

It is not clear when the new energy supply 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 blackouts. Inter RAO board chairwoman Alexandra Panina told TASS, a Russian news agency, that the company could deliver 600 MW, “in an ideal scenario,” while estimating shortages could reach 1 GW.

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

Some foreign miners such as Sydney-based Ricky Hoo, who owned 40 machines in Kazakhstan that were also managed by Enegix, started moving machines elsewhere despite the country’s 12% export tax on the value of the machines.

“Kazakhstan was one of the first places I sent miners because there was cheap electricity, but all of them are completely off now,” he said. It sent some of its 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, said the government’s focus on “gray miners” is an attempt to gloss over broader structural issues, such as the lack of grid maintenance and inability to transport electricity from the coal-rich north to the north south. Kegoc has announced its intention to carry out maintenance work on damaged power plants and power lines.

“Of course, the electricity supply from Russia may solve the problem in the short term, but I think there is a big discussion to be had about what kind of energy policy Kazakhstan is actually pursuing,” Anceschi said. . He argued that the government believed Bitcoin mining would be profitable, but had not “bothered to create production capacity that could actually meet existing or future demand.”

“It is one of the most energy-rich countries in Asia,” Anceschi said. “On paper, this shouldn’t have happened.

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