Crypto miners in Kazakhstan face bitter winter of power cuts

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

"It's been days since my machines were online," he said. "For the last week, even if my machines turn on, they barely stay on."

Kazakhstan has been struggling to cope with the enormous popularity of crypto mining, fueled 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 declared mining illegal. in May.

After three major power plants in the north of the country went into emergency shutdown last month, the state grid operator Kegoc warned that it would start rationing power to the 50 crypto miners who are registered with the government, and said they would be "disconnected". first ”if the network has problems.

I heard that it was installed in Kazakhstan in August and its machines are managed by Enegix, a company that rents space to run crypto mining machines.

He said his income has dropped from an average of $ 1,200 worth of bitcoins per day to $ 800 in October, and last week his machines have only been on 55 percent of the time. Machine owners are not notified when shutdowns will occur or when they will be back online, he said.

Pressure on the network caused by crypto mining operations has caused blackouts in cities and towns in six regions of the country since October. The Energy Ministry estimates that electricity demand has risen 8 percent since early 2021 when mining companies began migrating from China, compared with annual growth of between 1 and 2 percent in previous years.

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

Kazakh mining company Xive.io, which charges foreign customers to plug in their machines at their sites, shut down a major cryptocurrency mining farm on Wednesday and dismantled 2,500 mining rigs after power shortages made its operation unviable.

Xive.io Co-Founder Didar Bekbau tweeted a video from November 24 of the dismantling of the last mining platforms, with the legend "so much work, [our] hopes are ruined ”. in a live broadcast interview on YouTube in October, he had warned that the company was "under some stress" because it had invested in building new containers and farms before realizing the power shortage.

Authorities and industry experts have blamed the power shortage on an increase in the number of "gray miners," companies and individuals operating illegally in abandoned basements and factories, since the ban. The Energy Ministry estimates that they are extracting 1,200 MW of electricity from the power grid, double that of registered “white miners”.

In October, Murat Zhurebekov, deputy energy minister, said that a response to clamp down on their activities "cannot be delayed any longer."

Denis Rusinovich, co-founder of the Maverick Group, a mining services company operating in Kazakhstan, said that while some miners operate legally, some "moved too fast and took shortcuts." These miners "will be attacked because they don't have any paperwork," he said.

To make up for the shortage, starting in 2022 legitimate miners will have to pay a surcharge of 1 Kazakhstani tenge ($ 0.0023) per kWh, a move that miners like Rusinovich view positively as it will "classify official miners."

Until the surcharge takes effect, Kazakhstan has turned to Russia to increase its reserves, and has started talks with the Moscow-based energy company Inter RAO to strengthen the national energy supply. On November 16, Alexander Novak, Russia's deputy prime minister, announced that Russian companies would supply power to their southern neighbor, saying the deal "must be based on commercial terms." He did not specify an exact cost.

It is unclear exactly when Russia's new power supply will arrive in Kazakhstan, and it is unlikely that it will be enough to provide respite for crypto miners affected by winter power outages. Inter RAO board chairwoman Alexandra Panina told TASS, a Russian news agency, that the company could supply 600MW "in an ideal scenario", while she estimates the shortage could reach 1GW.

The Energy Ministry 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, have started relocating 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 now everyone is completely disconnected," he said. It has shipped 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" was an attempt to overlook broader structural problems, such as the lack of network maintenance and the inability to transport energy from the coal-rich north to the north. South. Kegoc has announced that it intends to carry out maintenance work on damaged power lines and plants.

"Certainly having the electricity input from Russia can address the problem in the short term, but I think there is a lot of discussion about what kind of energy policy Kazakhstan is pursuing," Anceschi said. He argued that the government thought bitcoin mining would be profitable, but had not "bothered to create production generating capacity that could actually meet existing or future demand."

"This is one of the most energy-rich countries in Asia," Anceschi said. "On paper, this shouldn't have happened."