Kazakhstan, known as the world’s third-largest Bitcoin mining hub in terms of hash rate, is currently grappling with a severe crisis in its crypto mining sector, largely attributed to skyrocketing energy expenses.
In a notable development, eight prominent cryptocurrency mining companies, including industry players such as BCD Company, TT TECH Limited, KZ Systems, AI Solutions, Green Power Solution, VerCom, and Kinur Invest, have penned an open letter addressed to President Kassym-Jomart Tokayev.
In this heartfelt letter, these leaders within the crypto mining realm shed light on the dire circumstances faced by the Kazakh crypto mining community due to exorbitant energy costs. The situation has grown so dire that all major industry players have already suspended their operations and are considering a complete withdrawal from Kazakhstan by the end of the year if conditions persist.
One of the primary concerns outlined in the letter is that the elevated energy prices are obstructing the government’s attempts to regulate the broader cryptocurrency industry, particularly with regard to mining.
This problem has arisen due to the government’s decision to impose taxes on the energy consumption of crypto mining activities.
Unfortunately, these taxing policies have eroded Kazakhstan’s competitive edge in the global crypto mining landscape, pitting it against giants like the United States, Russia, and China and putting the entire industry on the precipice of extinction.
The open letter emphasizes the pressing need for swift government intervention, underscoring the fact that without immediate action, the digital mining industry in Kazakhstan, which has been a global leader in hash rate, will cease to exist.
The taxation regime targeting digital mining entities came into effect on January 1, 2022, primarily focusing on the electricity consumption of these mining operations.
Even at the highest tax rate, one kilowatt-hour of electricity in Kazakhstan costs miners roughly $0.067, significantly lower than the average of $0.12 per kWh in the United States.
Official government data indicates that Kazakhstan collected approximately 3.07 billion tenges (equivalent to $7 million) in tax revenues from crypto mining entities in 2022.
However, this revenue has come at a steep cost—the imminent collapse of an industry that has been a substantial contributor to the country’s economy.