Crypto miners worsen Kazakhstan’s energy crisis

Energy demand is high and supplies are low from Europe to Asia. Many countries in the European Union have adopted emergency measures to help their most vulnerable citizens survive a winter of skyrocketing energy bills. China is back in force to coal while India threatens to run out of it altogether. Supply chains are disrupted around the world and inflation is on the rise around the world. In Kazakhstan, the government has kept energy prices artificially low, but this has created an unforeseen new challenge: The rise in cryptocurrency mining is now worsening the energy crisis.

Mining cryptocurrencies such as Bitcoin requires huge amounts of energy. The process involves solving extremely complex “proof of work” calculations that require massive amounts of computational energy. To secure the cryptocurrencies and keep the production rate stable, these puzzles become more and more difficult to solve as more and more people try to mine them. This means that mining a Bitcoin is much more computationally intensive today than it was five years ago, resulting in a rapid expansion of the crypto asset’s energy footprint as more and more people begin to mine, increasing the level of difficulty and the energy cost of mining itself.

Bitcoin’s global energy footprint is now 117.0 TWh per year, higher than that of the Netherlands and barely smaller than Argentina, a country of over 45 million people. Cryptocurrencies are now increasingly monitored for their ecological impact and the threat they pose to climate change mitigation goals. Now, some governments are starting to crack down on crypto, due to the threats it poses to the climate as well as established currencies and the global economy as a whole. Even China, which was once synonymous with the large-scale Bitcoin mining sector, imposed a general ban on cryptocurrency trading and mining in September.

Now, Chinese crypto miners are flowing onto the border with neighboring Kazakhstan, where energy is cheap and government agencies are ill-equipped to eradicate illegal mining operations. Apparently overnight, Kazakhstan found itself home to the second largest crypto industry on Earth, after the United States. Today, the mining operations of legal “white” and illegal “gray” crypto-currencies are drying up Kazakh networks at the height of a global energy crisis.

Advocates of cryptocurrency, and in particular of Bitcoin, have argued in the past that operations are largely powered by renewable energy and that their carbon footprint is overexaggerated – a claim based on questionable grounds. In Kazakhstan, however, it is not claimed that crypto-mining is powered by clean energy. The country is almost entirely powered by coal, and the recent proliferation of cryptocurrency mining will make it virtually impossible for the country to meet its climate goals. “What we have in Kazakhstan is a heavy dependence on coal at very low prices … But it creates very big problems in fulfilling the obligations that Kazakhstan has taken in order to return the greener economy, ”says Eric Livny, regional economist at the European Bank for Reconstruction and Development.

Reuters reports that a Kazakh crackdown on crypto mining operations is imminent. While many of these illegal operations may be well hidden in basements or abandoned warehouses, experts say they can be located using satellites equipped with heat-sensing technologies. “I think we will have the directive [limiting power to unregistered miners] released before the end of this year, because this issue cannot be delayed any longer, ”Kazakh Deputy Energy Minister Murat Zhurebekov said earlier this month.

Whether or not Kazakhstan is in a position to crack down on cryptocurrency mining, it is unlikely to make a lasting dent in the cryptocurrency market. Miners will just as easily shop and move on to the next unsuspecting market. With a business as decentralized as cryptocurrency, attempts to regulate emissions or tax energy consumption are useless. Tackling this pernicious problem will require creative problem solving and a globalized effort.

By Haley Zaremba for OilUSD

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