As Kazakhstan crumbles into chaos, crypto miners are lost

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When Denis Rusinovich founded cryptocurrency mining company Maveric Group in Kazakhstan in 2017, he thought he had hit the jackpot. Next to China and Russia, the country had everything a Bitcoin miner could ask for: a cold climate, legions of old warehouses and factories where mining rigs could be set up and, most importantly, cheap energy to power the electricity-hungry process. through which the cryptocurrency is minted.

“It was a good opportunity,” says Rusinovich. When China banned overnight cryptocurrency mining last June, scores of miners based in the country, who at the time made up between 60% and 70% of Bitcoin’s mining network, made the same call. and hastily moved to Kazakhstan, bringing into the country as many as 87,849 mining machines, according to an estimate by the Financial Times. Less than a year later, the initial buzz is history: miners now face frozen machines, popular unrest, and Russian troops roaming the country. And leaving is not an option.

Photograph: Taylor Weidman / Getty

Chaos engulfed Kazakhstan last week as protests in the south of the country over soaring fuel prices led to police crackdown, the removal of former President Nursultan Nazarbayev from his role as head of the security council and the shutdown of the Internet. Russian-led troops acting under the orders of the CSTO, a military alliance of post-Soviet states, have been deployed to the country. The impact of the shutdown on crypto mining was obvious: The Bitcoin network has lost 12% of its hashrate so far. Jaran Mellerud, analyst at cryptocurrency analysis firm Arcane Research, estimates that the shutdown alone could have cost Kazakh miners $ 7.2 million. For many miners, it was just the latest in a series of unfortunate circumstances that had hampered their operations for months. Those tempted to relocate to the country because of its low energy prices found that its aging power grid was not ready to cope with the sudden influx of miners, causing a surge in energy consumption. The government said mining accounts for 8 percent of the country’s capacity. Struggling with blackouts and blackouts, the government announced in October 2021 that it would begin rationing the power supply to registered miners and unplugging them if the grid experienced any stress.

This means that, at best, cryptocurrency mining farms shut down during peak hours, when the general population turns on the heat due to the harsh winter. “From 6 p.m. to 11 p.m.—[the power providers] sometimes cut the electricity of our mining farms ”, explains Didar Bekbauov, founder of the mining colocation company Xive. “This is definitely a problem. Hopefully when the winter season ends in March, everything will be fine.” But in other cases, Rusinovich says, it was “no operation.” It wasn’t. It’s not just a problem in terms of lost earnings – Rusinovich says miners have lost “tens of millions of dollars” per month due to power cuts, and Bekbauov says his mines are on the verge of hitting the mark. breakeven point – but time presents an additional risk during shutdowns because condensation instantly freezes on mining machines in Kazakhstan’s sub-zero climate, potentially damaging equipment. “[If the machinery is] instantly turns off, if it’s cold it freezes solidly, ”he said. To protect this frozen stock during the protests, many miners decided to spend money on additional security, said Alan Dorjiyev, president of the Kazakhstan National Association for the Blockchain and Data Center Industry. . “I spoke to all the owners in the mining industry, and they told me that they had tightened the security of the mining facilities because the equipment is quite expensive,” he says. This, he says, despite the fact that most of the mining farms are located in the energy-rich north of the country, far from the turmoil.

So why are they still there? The answer is, brutally, that they are stuck. All other major countries with cryptocurrency mining infrastructure, including Russia, Canada, and the United States, are grappling with a severe shortage of adequate facilities. “It couldn’t be worse – there is just no space, there is no capacity,” says Alex Brammer, vice president of business development at mining company Luxor Tech. “The largest publicly traded US mining companies are having serious problems plugging their miners in at any time over the next three to six months. “

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