Kazakhstan Shuts Down 100+ Illegal Crypto Mines for Evading Taxes

The government of Kazakhstan has forced yet another 106 illegal crypto mining facilities to go offline. Prior to this, the country halted the operations of 13 illegal mining firms in late February after vowing to crack down on unauthorized cryptocurrency miners.

Kazakhstan Resumes Crackdown on Illegal Miners

Kazakhstan’s Financial Monitoring Agency, in accordance with other agencies, has inspected mining activities which led to 55 mining farms voluntarily ceasing operations and another 51 being forced to do so. In an official statement, the country said:

“They [illegal crypto miners] did not notify the authorized body about the start of their activities, or illegally connected to energy sources without technical conditions, unreasonably placed on the territory of special economic zones, and also evaded taxes and customs duties.”

The investigation also revealed that a number of political figures and businessmen were involved in illegal crypto mining. Specifically, there were firms affiliated with Bolat Nazarbayev, the brother of former President Nursultan Nazarbayev, and Alexander Klebanov, the chairman of Central Asian Electric Power Corp, among other high-profile figures.

Why Kazakhstan is Banning Crypto Miners

Following China’s blanket ban on crypto mining last summer, a swarm of Chinese miners migrated to Kazakhstan in order to take advantage of its relatively low electricity costs. The Asian country soon lured some big crypto miners, including BIT Mining and Canaan, and became the second-biggest producer of Bitcoin hashrate.

However, the country’s energy grid started struggling to meet power demand. Energy consumption in 2021 grew by 8% compared to the same period a year earlier. The country did manage to increase electricity production by as much as 5.2% but still failed to meet the increasing demand. 

In early 2022, Kazakhstan started experiencing power shortages which were largely attributed to activities by illegal miners. The country even started routinely cutting off the power supply of mining firms and suffered hours-long power outages on January 25 after a major power line was disconnected.

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“Gray Miners” Blamed by Government in Kazakhstan for Electricity Problems

The government has been constantly blaming illegal miners, or “gray miners,” for the electricity problems. In a Facebook message on February 3, Digital Development, Innovation and Aerospace Industry Minister Bagdat Musin said:

“Gray miners are doing a lot of harm to our power grid. The energy costs of illegal mining are estimated to exceed 1 gigawatt.”

He also vowed to crack down on illegal mining operations. Shortly after, the country’s Energy Ministry terminated the activities of 13 mining farms. With the most recent crackdown, Kazakhstan has seized 67,000 mining rigs valued at 100 billion Kazakh tenges ($193 million) and has opened 25 criminal cases. 

Meanwhile, the country has been rising electricity tariffs and taxes on crypto mining. Earlier this year, the president of Kazakhstan, Kassym-Jomart Tokayev, has reportedly said that the current rate of 1 Kazakh tenge (US$0.0023) per kilowatt of power is nominal, asking for a 5x increase. 

The president had previously said that Kazakhstan is not against legal miners. He said:

“The government is not opposed to “white” miners, but people who want to operate in this sector must have a license, get their electricity at the appropriate tariffs, declare their income and pay taxes, and get involved in green projects.”

By August 2021, Kazakhstan was responsible for over 21% of the global Bitcoin hashrate, according to data by Cambridge Center for Alternative Finance. In comparison, the country accounted for only 13% of the Bitcoin hashrate by July last year. 

Do you think crypto miners would stay in Kazakhstan even after the proposed tax hikes? Let us know in the comments below.