As Kazakhstan plunges into chaos, crypto miners are at a loss


When Denis Rusinovich set up a cryptocurrency mining company Maveric Group in Kazakhstan in 2017, he thought he had hit the jackpot. Neighboring China and Russia, the country had everything a bitcoin miner could ask for: a cold climate, legions of old warehouses and factories where mining facilities could be installed, and – especially – cheap energy to power the process. of electricity absorption through which cryptocurrency is dug.

“It was a good opportunity,” Rusinovic said. When China banned cryptocurrency mining overnight last June, many miners based in the country, which at the time made up between 60 and 70 percent of the bitcoin mining network, made the same call and quickly moved to Kazakhstan, bringing targets into the country. 87,849 mining machines, according to a Financial Times evaluation. Less than a year later, the initial noise is history: miners are now facing frozen machines, popular unrest and Russian troops roaming the country. And leaving is not an option.

Photo: Taylor Weidman / Getty

Last week, chaos engulfed Kazakhstan as protests in the south over rising fuel prices led to police crackdown, removing former President Nursultan Nazarbayev from his role as head of the Security Council and shutting down the internet. Russian-led troops operating under the command of the CSTO, a military union of post-Soviet states, were stationed in the country. The impact of the shutdown on cryptocurrency mining was obvious – the bitcoin network has lost 12 percent of its hashrate so far. Jaran Mellerud, an analyst at cryptocurrency insight company Arcane Research, estimates that the shutdown alone could cost Kazakh miners $ 7.2 million. For many miners, this was just the latest in a series of unfortunate circumstances that have plagued their business for months. Those tempted to relocate to the country because of its low energy prices have found that the outdated power grid is unprepared to cope with the sudden influx of miners, sparking energy consumption. The government said production accounted for 8 per cent of the country’s capacity. Fighting power outages and interruptions, in October 2021 the government announced that it would begin to normalize the power supply to registered miners and turn them off if the network came under any stress.

This means that, at best, cryptocurrency mining farms stop working during peak hours, when the population turns on the heating due to the severe winter. “From 6 pm to 11 pm[the power providers] sometimes they cut off the electricity on our mining farms, ”said Didar Bekbauov, founder of Xive Mining Colocation Company. “It simply came to our notice then. We hope that when the winter season ends in March, we will get better. ” But in other cases, Rusinovic said, it was not an operation at all. This is not just a problem of lost profits – Rusinovic says miners lose “tens of millions of dollars” a month due to power outages, and Beckbau says his mines are on the verge of falling apart – but time is an additional risk during to stop, as condensation instantly freezes mining machines in Kazakhstan’s negative climate, potentially damaging hardware. “[If the machinery is] it immediately shuts off, if it’s cold, it freezes tight, “he said. To protect this frozen stock during the protests, many miners decided to spend money on additional security, said Alan Dordzhiev, president of the Kazakhstan National Association of Blockchain and Data Centers. “I talked to all the owners of the mining sector and they said they have increased the security of the mining facilities – because the equipment is quite expensive,” he said. This, he says, was despite the fact that most mining farms are located in the energy-rich northern part of the country, away from the turmoil.

So why are they still there? The answer is brutal that they are stuck. All other major countries with cryptocurrency mining infrastructure, including Russia, Canada and the United States, are struggling with an acute shortage of appropriate facilities. “It can’t get any worse – there’s just no room, no capacity,” said Alex Bramer, vice president of business development at mining company Luxor Tech. “America’s largest publicly traded mining companies have significant problems involving their miners at any time within the next three to six months.



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