Bitcoin, from opportunity to headache. Kazakhstan will have to import energy to power the computers that “extract” them

Cryptocurrencies could come to play a more important financial role in the future than the predominantly speculative one they have played up to now. However, their impact on some countries of the world is already well present. And it’s not just about The Savior which a few weeks ago was the first country to accept Bitcoin as legal currency. The issue, as well as financial, it is energetic: a country very rich in hydrocarbons like the Kazakhstan, for example, he might be forced to start importing electricity from Russia. Domestic consumption is indeed increased by 8% since the beginning of 2021, compared to average annual increases that usually are around 2%. The reason for this peak is quickly explained.

Since when China decided, last summer, to ban the “mining” activity of cryptocurrencies – that is to say that set of complex technological procedures to create the various digital currencies, which require huge quantities of electricity – because too much expensive in terms of energy, the number of mining farm present in Kazakhstan is grown exponentially. The exodus to Kazakhstan of these data processing facilities, many of them illegal, is linked to some peculiar characteristics of the Central Asian country.

First of all, the very low cost of electricity, which makes operating in Kazakhstan particularly convenient: as a comparison, in December 2019 it was equal to $ 0.041 per kilowatt hour (Kw) for domestic consumption and 0.049 for manufacturing activities, against, for example, an average price in the United States of $ 0.14 per Kw, almost triple. Second, the cold weather of a large part of the immense Kazakh territory allows mining farms to operate without risk of overheating of the systems and / or reducing consumption for refrigeration. Lastly, certainly not least, the authorities of the country have so far held an attitude not hostile towards the cryptocurrency sector, an approach that could however change in light of the current crisis.

For the government of Nur-Sultan it is a small consolation that Kazakhstan has climbed there in recent months global ranking of countries with the highest monthly hash rate (i.e. the processing power intended for cryptocurrency mining). According to what was reported by the Center for Alternative Finance of the University of Cambridge in its latest Bitcoin Mining Map (updated to August 2021), in fact, the post-Soviet Republic is now in second place with a world share of 18%, behind the United States reaching 35%, but ahead of Russia, which stops at 11%. Until June of this year, before the ban, the ranking it was dominated by China, with nearly 35% global. For the record, Italy stops at 0.05%.

If so far the Kazakh authorities have seen in the activities related to cryptocurrencies above all an opportunity for economic diversification and the influx of investments in the country, in June 2020 the desire to attract in the following three years was expressed beyond 700 million dollars of investments in the sector, the energy fallout could change the picture. The rationing to the largest consumers has already begun and there is also talk of measures to limit access to the electricity grid to unregistered mining operators or the introduction of a maximum limit of energy inflow intended for the sector as a whole.

However, the crisis of one country can represent an opportunity for another. As reported by Eurasianet, in fact, the Russian state company Inter RAO, operator of export and import of electricity, immediately proposed for open a supply channel at market prices to Kazakhstan, a costly alternative for the Kazakh authorities but probably the only one currently viable, considering the approach of the very rigid Central Asian winter. A proposal that is being examined by the Nur-Sultan Ministry of Energy, aware that, as explained by the Deputy Minister Murat Zhurebekov during a press conference, for a more systemic solution to the problem, investments in the national network would be needed for at least 1.5 billion dollars and at least five years of time.

The theme is also environmental, as well as economical. In fact, Kazakhstan occupies the tenth position globally for per capita emissions of carbon dioxide and, considering that much of the electricity is produced internally using coal-fired power plants keeping the price of the same artificially low, the difficulty of satisfying the internal demand will further delay the transition to renewable energies. On the other hand, the impact of cryptocurrencies on environmental sustainability is a topic that is increasingly in the spotlight, also because the numbers speak for themselves. Some estimates indicate that the “extraction” of Bitcoin – the most widespread and well-known cryptocurrency – generate between 22 and 23 million tons of carbon dioxide per year, equal to the emissions of countries like the Jordan or Sri Lanka. Still, according to data from the University of Cambridge, the annual amount of electricity needed to produce Bitcoins is almost equal 122 Terawattora, greater than the annual consumption of countries such as Argentina, Holland and United Arab Emirates.

Other countries may soon make the same decision as China by banning mining. This is what, for example, has recently been advocated by the Finansinspektionen, the Swedish Financial Supervisory Authority, and the Swedish Environmental Protection Agency. In the midst of Cop26, just concluded in Glasgow with an agreement deemed unsatisfactory by many observers, the two bodies have released one joint declaration, in which it is emphasized that the growing interest in renewable energy of cryptocurrency miners is not a positive element but a danger, because the renewables produced should be used for the climate transition of essential services towards sustainable models. Hence the invitation to ban mining on Swedish territory.

If the theme divides into contexts where there is no risk of energy rationing, the issue can only become even more thorny in countries, such as Kazakhstan, where promoting a sector such as cryptocurrencies at an institutional and economic level can have heavy repercussions on citizens’ daily lives. A dilemma that is currently difficult to resolve.

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