Russia will provide electricity to Kazakhstan for Bitcoin mining

In Russia, the government has begun preparations to provide electricity to Kazakhstan for cryptocurrency mining. 

Local newspaper RBC reports that the governments of the two countries have agreed to amend the existing agreement on measures to ensure parallel operation of the two energy systems. Specifically, it reports that the Russian government has ordered appropriate amendments to this agreement to enable the supply of electricity to crypto miners. 

Russia grants electricity to Kazakhstan to support local crypto mining

Kazakhstan is significantly smaller than Russia, yet according to the latest available data, more than three times the Bitcoin hashrate of its huge neighbor would be located there. 

Moreover, interestingly, in recent days Bitcoin mining hashrate has hit a new all-time high globally, exceeding 270 Ehash/s for the first time in history. 

The record dates back to yesterday, while today the hashrate is reported to be down, below 260 Ehash/s. 

Of these, more than 13% globally belong to miners operating in Kazakhstan. 

As a matter of fact, when China banned mining last year, completely zeroing its hashrate, many Chinese miners moved to neighboring Kazakhstan. The country is rich in fossil hydrocarbons, so electricity generation has very low costs. For this reason, miners fleeing China have found fertile ground. 

Added to this is a degree of benevolence on the part of the country’s authorities toward Bitcoin miners, which also explains why they have not actually opposed the increase in electricity consumption due to this mass displacement. 

To be fair, Russia has also seen its hashrate grow over the past few years, but it has shrunk globally, from 5% to about 4% within three years. 

However, this is data going back to January, which is before the war in Ukraine began and international sanctions were triggered. 

Curiously, as of September 2021, China’s hashrate is back to being the second largest in the world, at more than 20%

It is possible that the increase in global hashrate triggered since mid-August, with the price of Bitcoin falling, may also be due in part to these dynamics, in addition to those related to the significant increase in machine efficiency. 

The latter in particular allows for greater hashrates with the same amount of electricity consumed, or even less. Miners have every interest in increasing their hashrate, because mining is a competition in which those with higher hashrates win more, but they also have an interest in not increasing costs or even reducing them. 

Mining becomes more efficient, but there is a shortage of electricity

While China and Russia have long had a contentious relationship with cryptocurrencies, it seems that mining is not frowned upon at all in Kazakhstan. 

However, the significant increase in energy consumption due to mining could cause shortages in the availability of electricity for other uses. 

This is probably why the country has asked for help from its huge neighbor so as to obtain any missing electricity. It is worth remembering that Russia and Kazakhstan were not only both part of the Soviet Union for many decades, but were longtime partners even after its dissolution. 

RBC in particular reports that Inter RAO, i.e., Russia’s sole electricity import/export operator, with the appropriate changes to the agreements between the two countries will be able to sell electricity to Kazakhstan by entering into special contracts directly with Kazakhstan’s crypto mining companies. 

Problems of electricity availability shortages due to crypto mining occurred in Kazakhstan in January this year, when the government was forced to shut down 200 mining companies for a period of time. Despite this, mining has not been banned, and the agreement to purchase additional electricity from Russia clearly demonstrates a desire on the part of the Kazakh government to let this type of activity continue, as long as it does not create problems with the availability of electricity to citizens and other businesses. 

RBC also reports that Kazakhstan is actively developing the crypto sector, so much so that by the end of the year a crypto card would be issued to be used for common payments in stores.

In addition, a bill was submitted last week to regulate crypto mining in the country, although it has not yet been approved. 

It is abundantly clear, not only that Kazakhstan wants to continue to allow such activities to take place within its borders, but also wants to encourage their development in a way that is economically and socially sustainable. Such attitude toward crypto mining in Russia for example is absent, although steps have been taken toward the practical use of cryptocurrencies. 

Kazakhstan invests in crypto mining development

In Kazakhstan in particular, it appears that the government sees crypto mining as an attractive activity because of the wealth it produces locally, and would like to encourage that this wealth produced in Kazakhstan be spent within the country’s borders. 

It is not the only country that considers the wealth produced locally by crypto mining to be attractive, just as it is also not the only one that has had problems with power shortages due to the high consumption of this activity. However, it is one of the few that has decided to take matters into its own hands and look for solutions that are not like the Chinese solution of banning it. 

Besides, the ban in China is only notional, as after an initial moment when all the miners seemed to have complied and resigned, it only took a very few months for the resignation to vanish like snow in the sun. 

The Chinese case is emblematic, because the Chinese government is still an authoritarian regime usually able to impose its decisions on its citizens. Whereas with regard to crypto mining it was only able to unleash a passing terror that simply vanished within a few months. The situation now is not back to the way it was before, but apparently in some parts of China, the authorities are turning a blind eye to mining probably because they are interested in some way in the profits it produces.

After all, the relationship between authorities and cryptocurrencies in Russia also follows a similar trend. In fact, as time goes on they are increasingly tolerated, if not exploited to try to circumvent international sanctions. 

From this point of view, Kazakhstan has simply shown more realism and more long-term vision, although it has not actually solved the problem of high energy consumption yet, since the agreement made with Russia’s Inter RAO has only partly shifted it to the neighboring country.