“After 30 years of independent life, we can say that there has not been strong energy security framework thought by the Central Asia states” – states Dr. Luca Anceschi, energy specialist, professor of Eurasian Studies at the University of Glasgow in an interview with CABAR.asia analytical platform.
CABAR.asia: The countries of Central Asia are relatively attractive for cryptocurrency mining due to cheap electricity. Nevertheless, the attitude towards crypto mining in the countries of the region is quite different. How is crypto mining developing in Central Asia? What are the main problems of cryptocurrency mining in the countries of the region?
Well, I think that you need to see the advancement of crypto mining in Сentral Asia as a main consequence of the fact that China has restricted its crypto mining markets quite dramatically in the last year or so. So what you are getting now in the region is a lot of these crypto miners that are moving westward to mine Bitcoin or other cryptocurrencies. There are two perspectives from which you can analyse this development: on the one hand, crypto mining is an attractive proposition for the state because it generates more money via tax revenues. It’s an economic boost for the economy and, in general terms, if you create a rather welcoming investment climate for crypto miners, you will then see that many more will come.
But on the other hand, and this is an area on which my research is more interested, this kind of activity, especially if held on a larger scale, brings increased energy consumption. Central Asia, and Kazakhstan especially, has relatively cheap electricity yet the recent episode in which Kazakhstan’s government had to revert to blackouts to accommodate crypto miners’ demand, shows that Central Asia’s energy security framework is not strong enough to support large-scale crypto mining activity. As an attempt to do so, Kazakhstan tripled at one point the rate of electricity usage for crypto miners. That solution did not work either because the government did not have the time or the infrastructure to quickly reinvest extra revenues from crypto miners into the local electricity network. So, in conclusion, crypto mining can be a positive development for the state, but it certainly has its downsides.
How is mining beneficial to the countries of Central Asia? What cryptocurrencies do miners mine? Are there large mining farms in Central Asia?
Of course, if you have a business working within your borders, this business becomes subject to your fiscal system, which means that there is a revenue windfall when comes to the generation of taxes from crypto mining. I think that China’s decision to close its crypto mining sector may have convinced the Central Asian leaders, and Kazakhstan’s especially, about the possibility to to create a very strong presence of this kind of service across Central Asia. Even because the number of actual coins generated would be decreasing, but the activity to reach the target will remain constant. So this is a kind of short to midterm investment.In welcoming crypto miners to Central Asia, the main idea was to have a set of companies that could actually benefit tax-wise Kazakhstan and the other regional states.
A main difference, and this is particularly true if you compare the two bigger economies of the region—Kazakhstan and Uzbekistan—separates the mining of cryptocurrencies with trading in cryptocurrencies. Kazakhstan, especially, was very relaxed when it came to crypto mining for the reasons we mentioned before. But if you look at how Uzbekistan regulates this area, for instance, the government appears to be much less relaxed when it comes to trading because they are reportedly afraid of fraud. So here you have two aspects: on the one hand, you want to encourage mining to establish a viable landscape for cryptocurrency, on the other, you don’t want to allow that much trade in cryptocurrency.
States’ attitudes to cryptocurrencies depend very much on the amount of control that the state wants to exert on its financial markets. Kazakhstan is a much more advanced economy in that sense and what’s why they probably had a more liberal attitude towards mining. Whereas Uzbekistan, which is coming out of economic autarky establishing a more globalised economy, appears to be wary of crypto mining regulations.
Is there any crypto mining activity in the region besides Kazakhstan?
I heard that there is crypto mining also in Tajikistan but, when it comes to Tajikistan and Kyrgyzstan, the electricity situation is much more complex than it is in Kazakhstan. I haven’t heard much about Uzbekistan’s crypto mining activity but I am sure there will be something going on. I mean, you can do it even in your garage if you want, so this is an area that remains difficult to catch. But if we are talking about crypto mining as a more substantive economic activity, one that attracts the interest of the government, well, it then very much becomes Kazakhstan’s affair.
How are the authorities in Central Asia trying to regulate the crypto mining industry? What needs to be done to legally work in this industry? How beneficial is it?
Well, my perspective is different from the authorities’. I would like to say that this whole episode about Kazakhstan indicates that there is a significant problem so far as energy policy in Central Asia. If a country like Kazakhstan, which is very rich in oil and coal, is not able to accommodate a relatively big crypto mining sector, then you have a problem in the way in which the affordability, the adequacy, and the security of energy is guaranteed to your wider population. Also, to my mind, this brings about another problem: what did the Kazakhstani state say when they had to justify their decision to close this sector? They said there are a lot of people who are mining crypto currencies illegally. Well, I am not sure about that. I have not seen the numbers and even if I did see them, when it comes to the Central Asian governments, I would be trying to look for independent assessment of official statistics. This means that, in the best-case scenario, the Kazakhstani government did not have the capacity to monitor what was going on within their country. In the worst-case scenario, they are just lying to hide Kazakhstan’s energy problem. From whichever perspective you are looking at this, it seems clear to me that the government in Nur-Sultan preferred to have energy security rather than the money from the crypto miners.
There is an opinion that the mining of cryptocurrency is the reason for the energy shortage of electricity in some countries of Central Asia. How true is this statement? Is there a connection between mining cryptocurrency and electricity shortages?
It’s not the cause of shortages, this is a symptom of a wider energy insecurity. Any increase in electricity consumption related to crypto mining does not justify the fact that an energy-rich country like Kazakhstan has come to experience blackouts. Kazakhstan should never be in a position of having to choose between more economic activity and energy security. If you look at the numbers, Kazakhstan has the potential to satisfy a much higher electricity demand as it is Central Asia’s energy powerhouse. The problem is the grid is outdated, generation is an overly polluting process as is mostly done through coal, the government has not invested in creating a smarter and better grid and, when demand for one reason or the other increases, energy shortages do occur. So Kazakhstan’s energy insecurity is not related to increases in crypto mining.
The problem is that we see similar dynamics happening all the time across Central Asia. I think that the crypto mining issue allows us to think really about the sub-standard energy policy we’ve seen implemented in the region for the last 30 years. In Kyrgyzstan and Tajikistan, whenever there is winter coming, there is a problem – constant electricity blackouts. In late Karimov’s Uzbekistan, teachers had to go and pick up the woods to warm up the classrooms. In Kazakhstan, a few years ago they had petrol problems, with car drivers experiencing long queues at the pump because of oil shortages.
After 30 years of independent life, we can say that there has not been a strong energy security framework thought by the Central Asian states. Of course, we don’t know much about Turkmenistan, which remains a complex case to analyze, but it seems unreasonable to think that, there, the situation is somewhat better. The rising demand related to current crypto mining activity is not the cause of Kazakhstan’s energy problems, it is one of the symptoms of the country’s failed energy policy.
Crypto miners are often accused of harming the environment and leaving a “carbon footprint” from mining cryptocurrencies. For example, Kazakhstan primarily uses coal for power generation. The country’s authorities are planning to build a nuclear power plant. Will this initiative help facilitate crypto mining activities? What about solar, wind, or hydropower?
I think that this is a very good example of the fact that, in Central Asia, energy policy has always been formulated for the very short term, either to go through the winter season or to make sure that whatever revenues were expected by the government through energy exports kept coming. There has never been a serious rethinking about this crucial important policy area either in the energy-rich countries like Kazakhstan or Turkmenistan or in energy-poor like Kyrgyzstan and Tajikistan.
In a country like Kazakhstan with a long history of environmental and human hazards, because of nuclear testing in the Soviet era, the government is publicly discussing the opening of a nuclear power plant, setting back, in my views, the public discourse on energy by more than of 30 years. As a group of decision-makers, the government in Kazakhstan has failed to set a safe, adequate, and affordable energy policy. It’s not the crypto miners who pollute, they just raised the electricity demand, but it is up to the state to address how to satisfy such rise in demand in sustainable fashion. If you use coal to produce more electricity, you pollute, if you use oil and gas, you pollute, and if you use nuclear energy, you pollute less, but this still does not constitute a fully renewable energy policy. I think that there is a big responsibility on Kazakhstan’s government side to better regulate its energy sector, in a world in which more sustainable policy choices are proven to be profitable in the longer term.
Cryptocurrency and its trading are potentially shady activities, which do not come without problems. Let’s however say that you are an investor who plays by the government rules and pays the taxes, and you are happy to work within Kazakhstan’s business environment and you obtain the license to mine cryptocurrencies – you certainly are not a polluter. It is the government that gives you access to polluting energy that is responsible for that.
Why is crypto mining banned in China? Is there a future for crypto mining in general? What is the global experience in crypto mining regulation?
I am not an expert on Chinese politics and crypto politics but, from what I understand, this kind of activity requires a series of policy decisions that are quite difficult to be taken in authoritarian contexts like China’s, where the regime tends to control all kind of – legal, illegal, formal, informal – economic activities. The crypto market and mining can be quite shady, so these can’t be regulated to the extent to which the government in Beijing probably wishes to. I think that the calculation of the Chinese government made was to say, well we can’t make too much money out of it, so let’s get these crypto miners out. Opening the market to this kind of activity was in this sense less profitable than controlling it. Now a lot of the miners formerly operating in the Chinese market have moved to Texas suggesting that, indeed, there is a future for crypto mining. The problem though is that I am not sure what kind of a future you have for crypto mining in an authoritarian context. Because this kind of activity, especially if conducted on a large scale, asks many questions that authoritarian regimes may not always willing to address.
Are there any recommendations for the development or solution of crypto mining issues in Central Asia?
One thing is energy, another thing is crypto mining. I have already addressed the energy problem saying that you have inadequate energy policy-making in Central Asia. Crypto mining also asks many questions about the degree of exposure to globalization that the regional economies are willing to accept. Uzbekistan is still regulating very much the crypto trading market and, whereas I’m not sure about its attitude vis-à-vis crypto mining, it seems to me that many issues that arose in the Chinese context are returning to the surface when it comes to determine whether and how the authoritarian elites of Kazakhstan, Uzbekistan, Tajikistan are willing to engage with crypto currencies in a way that brings up economic advantage yet had the potential to weaken them politically. And this leads me to make a final point.
Especially in states where the internet is somewhat restricted as the government controls digital communication either by censorship, software or infrastructure obstacles, the crypto sector will put some pressures on the local elites. However, at least in the case of Kazakhstan, we didn’t go that far, as the real-life impact of increased crypto mining stopped at the energy market, which was thoroughly inadequate to satisfy the government’s plan to become a crypto mining powerhouse. Interestingly, the resulting energy insecurity did not only affect the government’s projected revenues, it also, and perhaps most importantly, affected the sectors of the population that were hit by the blackouts.
If there is one lesson that we learned from crypto mining in Kazakhstan is that, in Central Asia, trying to open up an economy to new forms of activities is a choice that probably requires better energy infrastructure and certainly calls for a much more sophisticated energy policy.