Kazakhstan’s heinous protests have taken a toll on Bitcoin, the World’s Second Largest Bitcoin Mining Hub Shuts Down.

As the Central Asian country of Kazakhstan descended into chaos this week, the world’s second-largest bitcoin mining hub experienced an internet outage, dealing a further blow to miners looking for a permanent and stable home.

Kazakhstan's heinous protests have taken a toll on Bitcoin, the World’s Second Largest Bitcoin Mining Hub Shuts Down
Kazakhstan’s heinous protests have taken a toll on Bitcoin, the World’s Second Largest Bitcoin Mining Hub Shuts Down

China excommunicated all of its cryptocurrency miners less than a year ago, prompting many to seek refuge in neighboring Kazakhstan. However, months after these crypto migrants arrived, protests over rising fuel prices erupted into the country’s worst unrest in decades, leaving crypto miners in the crossfire.

President Kassym-Jomart Tokayev ordered the nation’s telecom provider to shut down internet service. That shutdown took an estimated 15% of the world’s bitcoin miners offline, according to Kevin Zhang of digital currency company Foundry which helped bring over $400 million of mining equipment into North America.

“No internet, no mining, “Kazakh miner Didar Bekbau”.

Bitcoin fell below $43,000 in trade on Thursday for the first time since September, falling more than 8% at one point.

The country’s internet service has since been restored, but the entire episode reveals two important facts about the state of the bitcoin mining industry. For one thing, the bitcoin network is so resilient that it doesn’t miss a beat even when a significant portion of miners are unexpectedly taken offline. Second, the United States may soon see a surge in crypto miners seeking to avoid future disruptions.

The question now is whether the United States, which will have surpassed China as the world’s largest bitcoin mining hub in 2021, has the capacity to accept any additional miners.

Kazakhstan's heinous protests have taken a toll on Bitcoin, the World’s Second Largest Bitcoin Mining Hub Shuts Down
Kazakhstan’s heinous protests have taken a toll on Bitcoin, the World’s Second Largest Bitcoin Mining Hub Shuts Down

“What’s troubling is that previous congestion and bottlenecks around hosting capacity (readily available space to plug machines into) will be squeezed even further,” Zhang explained.

“There’s a lot of pressure and demand for hosting capacity,” he says.

How Does Cryptocurrency Work?

The first thing you need to know about cryptocurrency is that it’s not money. It may look like it, but this digital currency is really more like a commodity: a valuable material that can be used to purchase goods and services.

Cryptocurrency is an encrypted decentralized digital currency transferred between peers and confirmed in a public ledger via a process known as mining. The first cryptocurrency was Bitcoin, which uses the SHA-256 encryption algorithm. All cryptocurrencies are built on blockchain technology and are mostly based on the same principles as Bitcoin.

Mining for Bitcoin in Kazakhstan

Kazakhstan appeared to be a logical destination when Beijing kicked out all of its bitcoin miners in May 2021. Aside from being right next door, the country is also a major energy producer.

Mining is the time-consuming and energy-intensive computing process that is used to generate new coins and keep track of all transactions. Kazakhstan is home to coal mines, which provide a cheap and plentiful supply of energy, which is a significant incentive for miners who compete in a low-margin industry where their only variable cost is typically energy.

It also helps that the Kazakh government has a more relaxed attitude toward construction, which is beneficial for miners who need to construct physical installations in a short period of time.

Bekbau is the owner of Xive, a company that provides hosting services to international miners as well as sells mining equipment. He’s fielded countless inbounds from Chinese miners looking for a safe place to plug in their equipment in the last few months.

Kazakhstan's heinous protests have taken a toll on Bitcoin, the World’s Second Largest Bitcoin Mining Hub Shuts Down
Kazakhstan’s heinous protests have taken a toll on Bitcoin, the World’s Second Largest Bitcoin Mining Hub Shuts Down

According to the Cambridge Centre for Alternative Finance, Kazakhstan is just behind the United States in terms of its share of the global bitcoin mining market, accounting for 18.1 percent of all crypto mining.

However, the government has not been overjoyed with its burgeoning crypto mining industry.

For months, Kazakh lawmakers have been enacting new rules to discourage mining, including a law that will levy additional taxes on cryptocurrency miners beginning in 2022. Experts predict that the move will significantly alter the incentives for people looking to deploy capital within Kazakhstan.

“The internet outage follows efforts to impose a de facto ban on new mining in the country, so miners will have been well aware of the political risk there,” Nic Carter, co-founder of Castle Island Ventures, said.

“These bans only serve to highlight why miners are increasingly locating themselves in politically stable jurisdictions,” Carter said.

Several mining experts also tell the Associated press that Kazakhstan was always intended to be a stopover on a long journey west.

According to Alex Brammer of Luxor Mining, a cryptocurrency pool designed for advanced miners, large miners with older equipment are heading to Kazakhstan in the short term.

“However, as older-generation machines reach the end of their useful lives, those companies will most likely deploy new machines in more stable, energy-efficient, and renewable jurisdictions,” Brammer said.

The United States has quickly become a crypto mining mecca, in part because it is home to some of the world’s cheapest sources of energy, many of which are renewable.

If miners do make their way west, it could help the larger debate over bitcoin’s carbon footprint.

Carter points out that Kazakh energy is carbon-intensive, so a prolonged outage in the Central Asian country, like the Chinese ban, would likely have the net effect of decarbonizing bitcoin mining even further.

However, not everyone believes that Kazakhstan is about to lose its crypto mining industry.

Alan Dorjiyev is the president of Kazakhstan’s National Association of Blockchain and Data Centers Industry, which is largely made up of mining companies. Dorjiyev tells the Associated Press that after speaking with mining farm owners across the country, he believes most data centers are safe because they are in areas where there are no protests.

Whether miners leave Central Asia or not, industry experts tell the Associated Press that the most important takeaway from this ordeal is that bitcoin mining has yet again passed another stress test with little drama.

′′As we saw with China when a country demonstrates it is unstable for mining bitcoin, miners in that country will move elsewhere,” said bitcoin mining engineer Brandon Arvanaghi, who now runs Meow, a company that allows corporate treasuries to participate in crypto markets.

Over time, this is how the bitcoin network becomes more resilient.” “As miners migrate to the most advantageous jurisdictions, disruptions become less common.”

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