How Kazakhstan plans to develop the cryptomining industry

From April 2023, the draft law “On Digital Assets in the Republic of Kazakhstan” should come into force. The Ministry of Digital Development, Innovation and Aerospace Industry reminded that the document was adopted by the Parliament, and it was sent for signature to the head of state. Participants of the Digital Almaty Forum 2023 assessed the impact the new law will have on the market and how Kazakhstan can eliminate the shortage of electricity, reports the correspondent of the Kapital.kz business information center.

When should we expect the effect of the new rules of the game?

During his speech, Gizzat Baitursynov, Deputy Director of the Department for Digital Assets of the Ministry of Digital Development, Innovation and Aerospace Industry of the Republic of Kazakhstan, recalled that in many countries cryptocurrency is used as a means of payment. “In our country, the National Bank of the Republic of Kazakhstan is not yet ready for this within the framework of the draft law “On Digital Assets in the Republic of Kazakhstan”. Cryptocurrency in our country is property. But I think that this is all temporary, in the future, I suppose we will come to this,” Gizzat Baitursynov said.

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Speaking about the bill, he listed the tasks that are supposed to be solved.

“Firstly, we are introducing licensing of mining activities. This measure will solve the problems of uncontrolled gray mining. That is, we will clearly know our market, which miners are located and where, and we will monitor. Secondly, within the framework of the bill, we will maintain a register of digital mining computing equipment,” Gizzat Baitursynov said.

According to him, the problems in the field of mining in Kazakhstan were due to the fact that the earnings of miners were in the “gray zone”. “That is, we did not see how much they earn. We, the State Revenue Committee of the Republic of Kazakhstan, did not have any information on this matter. Basically, all the owners of wallets (with cryptocurrency – Ed.) were abroad, and all the mined cryptocurrency went abroad. Kazakhstan was a raw materials appendage, it was engaged only in the maintenance of digital equipment for mining,” the expert noted.

He also stressed that within the framework of the bill it is planned to introduce accreditation of mining pools. They will have to provide data on the income of each miner and tax them. “… I think, starting from April this year, when the bill comes into force, we will see the first results of its work after the second quarter of 2023,” Gizzat Baitursynov believes.

How to change the taxation of miners

Vice President of the Association of Blockchain and Data Center Industry in Kazakhstan Sergey Putra also expressed his opinion on the bill. He believes that the digital mining industry after the entry into force of the bill “will become the most transparent industry in Kazakhstan.” At the same time, he outlined several points that should be corrected in this document.

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“Cryptocurrency is property, and any transactions with property are subject to VAT. All over the world, cryptocurrency transactions are not subject to VAT. And, therefore, this imposes certain restrictions on the crypto-ecosystem of Kazakhstan. We believe that legislative consolidation and exemption of such transactions from VAT is necessary. And we are already working in this direction,” the expert noted.

He also drew attention to the need to change the system of taxation of miners.

“In our opinion, since the entry into force of the bill, digital mining has a transparent system of taxation from the real income of miners. From our point of view, it is illogical to tax a resource (electricity consumed by miners – Ed.), which is used to mine digital assets, with a tax even before the miner receives any profits. We don’t tax the gasoline that taxi drivers buy,” Sergei Putra said.

The expert also raised the issue of energy supply for miners. “In the media, digital mining is now considered as one of the main threats to the energy system of our country. But we are immersed in this industry and see real challenges and opportunities in it. We believe that digital mining may not be a threat, but one of the ways out of the energy crisis. Because digital miners can consume electricity on a stable schedule, at high prices. They do not create receivables (to CHP – Ed.), They always pay on time for electricity. This enables power plants, which will sell electricity to them, to carry out scheduled repairs and modernization of their stations,” Sergey Putra noted.

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The moderator, managing partner of MOST Ventures Pavel Koktyshov addressed the question to Sergey Putra: “Are miners really as white and fluffy as you say?”

But the chairman of the Kazakhstan Electric Power Association Talgat Temirkhanov answered this question. “In Kazakhstan, the volume of gray mining is estimated at the same level as white mining. Gray mining may even be prevalent. And this is a problem for Kazakhstan. For about a year, there has been a fight against “gray” mining, while it goes on with varying success. We continue to identify illegal miners who connected to the networks … Investigative actions are underway against them, ”he said.

Pavel Koktyshev asked about the capacity of the largest mining farm that was identified. “She numbered several thousand asic. (Equipment for cryptocurrency mining – Ed.),” said Talgat Temirkhanov.

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Chairman of the Kazakhstan Association of Blockchain Technologies Sapar Akhmetov specified that about 70% of miners left Kazakhstan. “But problems with electricity in the country remained,” he stressed.

Kazakhstan buys electricity from Russia

Talgat Temirkhanov, chairman of the Kazakhstan Electricity Association, pointed out that miners for energy companies are the same consumers as factories and individuals. “At the same time, if you put miners on one scale and an enterprise on the other, the state will first of all provide electricity to a plant that will employ a large number of people. We are talking about ferroalloy plants, where 1.5-2 thousand people work,” said Talgat Temirkhanov.

He recalled that in 2019-2020, when Kazakhstan announced that the country had cheap electricity, miners began to actively enter the Republic of Kazakhstan.

“It’s really cheap, and that’s why miners poured in to us … And this caused a big distortion in the country’s energy system. Today we have a colossal shortage of electricity. Every year we buy additional electricity in Russia. But, nevertheless, we have restrictions on the flow of electricity. KEGOC lines are limited, they cannot transmit more electricity than is technologically provided … We, as power engineers, must be able to predict the balance of electricity consumption for 5-7 years. Unfortunately, we could not predict this balance in 2020, miners poured into the country, they were not declared either in the programs of the Ministry of Foreign Affairs or the Ministry of Energy. Prior to this event, we observed a surplus of electricity: 2-2.5 thousand megawatts. But we exhausted them within two years. That is, in Kazakhstan there has always been a surplus of electricity, but for the last two years we have experienced a colossal shortage of this resource,” the expert emphasized.

Expecting a deficit

The expert also noted that in the next 5-7 years, according to the forecasts of the Ministry of Energy, a stable shortage of electricity is expected. “Let’s take off the rose-colored glasses. Let’s think realistically: there will be no additional electricity (soon – Ed.). Unlike mining farms, which can be built within six months, this will not work with stations,” Talgat Temirkhanov noted.

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He stressed that the cost of the hydroelectric power station could cost several billion dollars. “The CHP will cost a little less… In the energy sector, we have an interesting situation: there are many consumers on the market, new miners and factories are appearing. We travel all over the world and attract business. But we do not understand what kind of energy will be tomorrow: coal or gas. The Ministry of National Economy is developing a low-carbon development strategy, the Environmental Code, which provides for the modernization of stations – this is a huge investment that should be reflected in the tariff. At the same time, due to the social component, the government keeps the electricity tariff. At the same time, one should not say that mining should not develop,” the expert said.

Need to build mini-power plants

One of the solutions offered by the Kazakhstan Electricity Association to avoid a shortage of electricity in the market is the construction of mini-power plants.

“We met with Russian and Chinese colleagues. In China, in the near future it is planned to introduce a ban on investment and lending for the construction of coal-fired generation. It turns out that for those companies that are engaged in the field of traditional, coal-fired energy, the Chinese market has already collapsed. And they will seek to find new markets. At the same time, Chinese specialists have quite advanced coal-fired generation technologies to prevent environmental pollution. They are ready to invest in Kazakhstan, they are ready to build low-capacity stations on a turnkey basis, about 50-100 MW. Such stations will operate only on coal. At the same time, so that the miners are connected by the same network, that is, they will not connect to the KEGOC network. After all, when miners load the power system, huge failures occur in Kazakhstan,” summed up the chairman of the Kazakhstan Electricity Association, Talgat Temirkhanov.

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