When Denis Rusinovich founded crypto mining company Maveric Group in Kazakhstan in 2017, he thinks he has hit the jackpot. Next to China and Russia, the country has everything a Bitcoin miner could ask for: a cold climate, legions of warehouses and old factories where mining rigs can be installed and — especially — cheap energy to power the electricity consumption through which cryptocurrencies are minted.
“It was a good opportunity,” said Rusinovich. When China banned overnight crypto mining last June, many miners based in the country – which at the time accounted for 60 to 70 percent of the Bitcoin mining network – made the call. similar call and quickly moved to Kazakhstan, bringing to the country 87,849 mining machines, according to a Financial Times estimate. Less than a year later, the initial public opinion has gone down in history: Miners are now faced with freezing machines, widespread unrest, and Russian troops moving across the country. And leaving is not an option.
Last week, chaos engulfed Kazakhstan when protests in the south of the country over soaring fuel prices led to a police crackdown, removing former president Nursultan Nazarbayev from his role as head of the security council. and shut down the internet. Russian-led troops operating under the orders of the CSTO, a military alliance of post-Soviet states, have been deployed to the country. The impact of the shutdown on crypto mining is clear – the Bitcoin network has lost 12% of its hashrate to date. Jaran Mellerud, an analyst at crypto research firm Arcane Research, estimated that the outage alone could have cost Kazakhstan miners $7.2 million. For many miners, it is just the latest in a series of unfortunate circumstances that have plagued their operations for months. Those tempted to move to the country because of low energy prices have found that its aging grid is not prepared to handle the sudden influx of miners, causing energy consumption to spike. Government says mining accounts for 8% of the country’s capacity. Faced with power outages and power cuts, in October 2021 the government announced it would begin allocating power supplies to registered miners and unplug them should the grid encounter any what stress.
This means that, at best, crypto mining farms shut down during peak hours, when the general population turns on the heat due to harsh winters. “From 6 p.m. to 11 p.m.—[the power providers] Didar Bekbauov, founder of mining company Xive, said that sometimes power cuts to our mining farms. “That is definitely a problem. Hopefully when winter ends in March we will be fine. ” But in other cases, Rusinovich said, it “didn’t work” at all. It’s not just a matter of lost profits — Rusinovich says miners are losing “tens of millions of dollars” every month due to power cuts and Bekbauov says his mines are just about to break even — but the weather increases added risk during downtime as steam freezes instantly on mining machines in Kazakhstan’s subtropical climate, potentially damaging hardware. “[If the machinery is] immediately turn off the machine, if it gets cold, it will solidify,” he said. Alan Dorjiyev, president of Kazakhstan National Blockchain and Data Center Industry Association, to protect that frozen stock during the protests, many miners decided to spend money to increase security. “I spoke to all the mining site owners and they said they have increased the security of the mining facilities – because the equipment is quite expensive,” he said. That, he said, is despite the fact that most of the mining farms are located in the energy-rich north of the country, far from the chaotic situation.
So why are they still there? The answer is, brutally, that they are trapped. All other major countries with crypto mining infrastructure – including Russia, Canada, and the US – are struggling with a severe shortage of adequate facilities. “It couldn’t have been worse – just no space, no capacity,” said Alex Brammer, vice president of business development at mining company Luxor Tech. “America’s largest publicly traded miners are having serious problems attracting their miners anytime over the next three to six months.”
