Opinion Kazakhstan Revolution and Bitcoin Mining

Kazakhstan Revolution and Bitcoin Mining

January 8, 2022

The issue of national bitcoin mining and crypto mining industries in general is always a complicated one. Ever since China began its on-again-off-again relationship with its mining pools, there has been a constant struggle to figure out which nation produces precisely how much hash rate. That applied to both developed countries as much as for those who might otherwise struggle with some of the basic necessities of a modern world. Kazakhstan is a huge nation in Asia that is neither of these two polar opposites of the development specter. 

Oil-rich and in the sphere of Russian influence, it has long been associated with a very low profile in the international arena, but also the financial domain. However, a recent outburst of street protests that turned into bloody mayhem showed that the country is also a huge player in the cryptocurrency domain. The unrest and the subsequent shutdown of online services and all internet access in the country showed that it is the second-largest producer of bitcoin network hash rate and more than relevant for the wider crypto domain. That is the reason why so many across the world who are somehow interested or invested in cryptocurrencies are following with great interest what is happening in this remote nation in central Asia. 

Kazakhstan Breakdown

The turmoil in Kazakhstan began suddenly for much of the world, including the international press that usually covers diligently (although too often not impartially) the geopolitical hotspots. Before the start of 2022, not many analysts, even those who specialize in central Asia, would have called Kazakhstan a hotbed of potential social, political, and security issues. Yet, in a matter of days, the process of citizens demonstrating against surging prices of liquid gas exploded into a rebellion and then a bloody armed conflict which still remains unclear. 

The same process included gun battles in Almaty, a big city in the south of the country, and scores of dead, both from the security forces and citizens, some of which the embattled government calls foreign terrorists. When the uprising began, the country also immediately severed all major communication lines, including the internet. The unexpected side effect of the whole process was the total disruption of the Kazakhstan crypto mining industry, which went offline in a matter of hours. 

News from the Ground

Once the blackout became clear, the cryptocurrency media quickly reached out to some of those directly active in this industry. Didar Bekbau, the co-founder of Xive, which is a mining farm in the country, sums it the best. He said that without the internet, there would be no mining. Others confirmed that even with some backup solution, a nationwide loss of the internet would render mining next to impossible for all mining pools. 

That means that all of the industries inside of the borders of the country went down altogether and at the same time. At the same time, no source from Kazakhstan so far came forward with a different narrative, pointing to a pool that managed somehow to bridge the issue and continue working. So, the unrest and revolt in the country managed to create history even in the crypto mining domain with this blackout. 

Hard Data

The blackout quickly became visible on the data streams that follow the hash rate of the bitcoin network. With so many participants in it that are from the domains of esports, exchanges, and many other data-driven entities, the overview of the bitcoin core mechanisms is anything but modest. That is why the top mining pools quickly showed that they lost on average around 10 percent of their hash rate. 

As the overall computing power of the bitcoin mining system, which spans the globe, it is essential for not just the creation of new tokens but also the facilitation of the transactions. This showed in a span of a day just how important Kazakhstan is to the biggest crypto network. The only nation that bolsters a bigger mining capacity is the US, especially now as China decided to get rid of its cryptocurrency mining industry. Because of that, data from the network showed that its second-biggest harsh rate is all of a sudden no longer online.

Kill Switch

The turmoil that is unraveling in Kazakhstan shows that the possibility many cryptocurrency users fear is more than real – this is the existence of a kill switch for the internet. The same switch is also able to negate access to all internet protocols to all users on a particular territory. In Kazakhstan, internet connectivity went out like a light bulb across multiple providers, all at the same time. That all indicates a presence of a central kill switch that is able to shut it all down. 

For many, this is the ultimate worry on a technical level and shows that even countries that are not China have their own versions of the great firewall. In this case, it might be drastically less sophisticated, but still more than powerful in terms of doing its job and denying everyone access to the internet. The danger here is clear and covers not just the domain of crypto mining. However, the potential to cause disruption in this regard is more than evident as well.

Energy Crisis

The root cause of the instability in Kazakhstan is an unfolding energy crisis taking place not just there, but across the world as well. That problem goes beyond liquid gas used to power vehicles. In recent months, the electricity grid in the country has been under growing pressure. A part of that problem is the increased demand that is coming from cryptocurrency miners, but also a string of coal power plans, as well as other issues related to the infrastructure. In these circumstances, mining BTC tokens is not exactly a priority for any government. That means, along with politically driven use of internet kill switches, that the crypto sphere of influence is also tightly connected to the ongoing energy crisis. As it destabilized nations, its impact on the crypto industry on a global level could be more than substantial as well.