Bitcoin mining was booming in Kazakhstan. Then it was gone.

To reach Kazakhstan’s largest bitcoin mine, you need to travel deep into the country’s rust belt, to the city of Ekibastuz. In the far northeast of the country, equidistant between the capital city of Astana and the country’s border with Siberia, it’s a drab sprawl of down-at-heel shops and cramped Soviet-era apartment buildings, known locally as “chicken boxes.”

In late October, I waited in a hired car in a parking lot in the middle of town to join a short convoy to the mine, headed by a private security vehicle carrying armed guards. Orange lights flashing, it led the way on narrow roads that curved between tailings ponds and pits that threw up spirals of gray dust.

After 20 minutes, the cars pulled up to a gate manned by a security guard in black paramilitary gear, a Kalashnikov across his chest. Inside, more armed guards patrolled, and CCTV cameras on towers kept a constant watch. “Scavengers,” explained Yerbol Turgumbayev, who manages the mine for its owner, Enegix. He had to shout to be heard over the roar of the ventilation fans pushing sauna-hot air out of the facility’s eight 60-meter-long hangars, each filled with two-story-high racks of computers.

When fully operational, Enegix’s facility consumes 150 megawatts of power, five times the peak demand of Ekibastuz itself. It is just one of dozens of bitcoin mining operations that were drawn to Ekibastuz and the surrounding region in recent years. Abundant coal and the withering of industrial production after the collapse of the Soviet Union left the area—and Kazakhstan as a whole—with an electricity surplus. Eventually bitcoin miners cottoned onto that fact, and in 2017, they started to arrive. Not only was power cheap, but there was almost limitless land and a surfeit of unused industrial buildings that mines could inhabit.

By the summer of 2021, through a combination of entrepreneurship, graft, and circumstance, Kazakhstan had risen to be second in the world for the “hash rate”—a measure of how much computing power is devoted to bitcoin mining.

But the gold rush was doomed from the start. Kazakhstan’s miners—both “white” miners, who took advantage of tax breaks and cheap power, and illegal “gray” miners, who exploited Kazakhstan’s crony politics and lax governance to operate below the surface—overloaded the country’s energy grid. By the end of the year, the mining industry was consuming more than 7% of the entire generating capacity of Kazakhstan, a country of 19 million people. The surge tipped the grid over from surplus into deficit. Power shortages led to localized blackouts in parts of the country, exacerbating existing tensions over corruption, nepotism, and the rising cost of fuel. In January 2022, these issues boiled over into mass protests. Within weeks, the government effectively cut miners off from the national grid, bringing the boom to an abrupt end.

When fully operational, Enegix’s 150MW crypto mine on the outskirts of Ekibastuz consumes five times the peak demand of the town. PETER GUEST

It was just the start of a turbulent year for cryptocurrency. The crypto world was gripped by scandal after scandal in 2022, from the collapse of the Terra stablecoin to the dramatic implosion of FTX, the third-largest crypto exchange, amid allegations of fraud and theft. But Kazakhstan’s experience also reflects a slower-moving crisis in the crypto supply chain, one that seems to arise wherever miners alight and that poses huge questions about the industry’s social, economic, and environmental sustainability.

When Kazakhstan cut off its bitcoin miners from the grid, dozens of mining operations shut. Almost all of the international miners moved on, some fleeing for the border in disarray. Enegix has held out, but it is running at a fraction of its capacity, working from midnight to 8 a.m. and on weekends, using electricity imported from across the border in Russia. The company hopes the environment will change, but with bitcoin prices now a fraction of their 2021 peak, the economics of the industry have changed profoundly. The Bitcoin caravan has moved onsome of it to China, Russia and the US, other parts to new frontiers in Central Asia and Africa.

In its wake, it left

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By: Peter Guest
Title: Bitcoin mining was booming in Kazakhstan. Then it was gone.
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Published Date: Thu, 12 Jan 2023 10:00:00 +0000


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