The vulnerability of Kazakhstan’s bitcoin mining industry was highlighted last week, when the country’s internet was shut down amid anti-government protests, sparked by rising energy prices.
The world’s second-largest miner has seen its hash rate, or computing power that secures bitcoin, drop by double digits, down dramatically from the 18.1% it is estimated to contribute, according to the Cambridge Center for AlternateFinance.
The disruption marked a major setback for a market that has sought to capitalize on a mining ban in neighboring China. Its hash rate has increased by more than 10% since China’s ban last June.
“A lot of the old Chinese mining operations have moved to Kazakhstan,” reiterated John Warren, CEO of US-based GEM Mining. Prior to launching GEM mining in the United States, Warren told Yahoo Finance that he had been approached to establish operations in Kazakhstan with promoters touting its “cheap electricity” supply.
Although cheap, the country’s electricity grid is not stable. In October, the Kazakhstan Electricity Grid Operating Company (KEGOC), which operates the national power grid, faced an energy supply crisis, citing both “a higher number of power plant emergencies” as well as the “sharp increase in the consumption of digital miners”. . “
The limited power supply is likely to cause another mining migration – this time, to the West.
In an interview with Yahoo Finance, Xive Mining co-founder Dibar Bekbauov said many mining companies in the country are increasingly looking to the United States as “one of the top priorities” for expansion. , largely due to the availability of cheaper electricity.
“I believe the United States will be the greatest mining center in the world,” he said. “Over 60% of the total hash rate will be in the United States within two years.”
Such a move wouldn’t be cheap or easy, according to Colin Harper, head of content and research at Luxor, a bitcoin mining pool and software company.
The United States is now estimated to account for 35.4% of bitcoin’s hash rate. Harper told Yahoo Finance that because the country provides both abundant electricity and a stronger rule of law compared to other mining hotspots, competition for the materials needed to build a mining facility or space for rent has gotten worse over the past year.
Adding to the hangover, China-based bitcoin miners have moved to the United States, and North American businesses are expanding. As a result, Kazakhstan-based miners considering relocating to the United States could face a huge impact on their bottom line.
Quite important, especially if they’ve just moved to the country after emigrating from China, according to Harper, some of them “might throw in the towel.”
“Green” in the United States
The favorable condition that the United States offers bitcoin miners is greater access to renewable energy sources.
The energy intensity of Bitcoin mining remains a hotly debated topic among climate activists, academics, and miners themselves. Miners don’t necessarily have an incentive to pursue renewable energy, but it has become a major focus as the price of bitcoin skyrocketed in 2020 and 2021.
According to an annual report from Luxor, “listed miners (and those looking to go public) will continue to ‘green’ their operations by directly pursuing renewables or buying carbon credits/offsets for two main reasons. First, companies will choose to do so on purpose to “appease critics.” Second, the ESG mandates of US regulators will require it.
Alex de Vries, founder of Digiconomist, an economics blog, is a vocal critic of industry energy consumption. De Vries told Yahoo Finance in late August that “miners need cheap, stable energy; and (obsolete) fossil fuels are simply better at providing both.
On January 20, the US House Energy and Commerce Committee will hold a hearing on the energy impacts of cryptocurrency, and bitcoin mining is expected to take center stage.
In total, the Cambridge Center for Alternative Finance estimates that the industry consumes 126 Terra watt hours (TWh) per year, more electricity than Ukraine consumes and more than the electricity consumed by residential lighting. and television in the United States. However, these comparisons are not 1 to 1.
David Hollerith covers cryptocurrency for Yahoo Finance. follow him @dshollers.
Akiko Fujita is a presenter and reporter for Yahoo Finance. Follow her on twitter @AkikoFujita
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