Source of this article: Time Weekly Author: Ma Huan
The unrest in Kazakhstan has affected not only the normal order in its country, but also the global cryptocurrency market.
According to media reports on January 9, armed riots broke out in Kazakhstan in early January, and on January 5, the whole country entered a state of emergency, and the Internet was interrupted for several hours, directly affecting some bitcoin mining pools located in Kazakhstan.
According to The Block, a cryptocurrency consulting and research website, after the network disruption, the scale of operations of many mining companies around the world in Kazakhstan suddenly fell sharply, and the final strength of mining and processing transactions in multiple Bitcoin mining pools dropped by 12%-16%.
In Bitcoin transactions, hash rate, also known as hash rate, is a unit of measurement of the processing power of the Bitcoin network. Bitfufu, Bitmain's cloud computing platform, issued a statement saying that due to the situation in Kazakhstan, some orders on the platform were forced to lose power.
This volatility led to a collapse in the global Bitcoin market.
Since January 6, the price of Bitcoin has taken a sharp turn for the worse. (Source: Ying Wei Cai)
On January 6, the price of Bitcoin took a sharp turn for the worse, plunging more than $4,000 in one day. In the early morning of January 9, the price of the coin fell to $40,595, falling more than $7,000 a week. At the same time, the data shows that as of 12:00 on January 9, a total of 120,000 people on the whole network have exploded in 24 hours, with a burst of 310 million US dollars (about 2 billion yuan).
Why would a Kazakh outage have such a big impact on the Bitcoin market?
In the past 2021, Kazakhstan is the world's second largest bitcoin mining center, second only to the United States, accounting for 18% of the global hashrate. Previously, due to the continued tightening of cryptocurrency policies in various countries, miners had to transfer bitcoin mining equipment to Kazakhstan, so there were many mines from all over the world.
According to Agence France-Presse on January 10, Almaty, Kazakhstan's largest city, has restored network and electricity. Currently, the bitcoin price has recovered to $41,982.
Bitcoin plummeted
Over the past week, large-scale unrest in Kazakhstan has attracted global attention.
On the afternoon of January 5, thousands of people broke into the Almaty city government building, violently set fire to it and damaged public property, Xinhua reported. On the same day, Kazakh President Tokayev signed a presidential decree declaring a national emergency. At the same time, local Internet services were completely disrupted, and social media, instant messaging, web sites, etc. were all inaccessible.
Source: Reuters
This move has dealt a serious blow to the local bitcoin mining industry.
Larry Thurmark, head of research at cryptocurrency consulting and research site The Block, tweeted that after the Disconnection in Kazakhstan, Bitcoin's global hash rate power disappeared by 12%, and the business of several producers in Kazakhstan suddenly fell sharply. Bitcoin-producing companies such as AntPool, Poolin, and Binance Pool have seen their hash rate drop by 12%-16%.
Currently, in Kazakhstan, there are 50 cryptocurrency mining companies registered with the government, as well as some unregistered mining practitioners.
Previously, the Kazakhstan Data Center Industry and Blockchain Association had expected the country to generate $1.5 billion (about 9.6 billion yuan) from legitimate cryptocurrency mining activities over the next five years, as well as another $1.5 billion in illegal revenue.
Almost one-fifth of the computing power used by the global Bitcoin network comes from Kazakhstan. Once the country loses the network and power, the shock to the global bitcoin market can be imagined.
In fact, since the beginning of 2022, the price of Bitcoin has been falling all the way. During the turmoil in Kazakhstan, the bitcoin price performed even more poorly: from a high of $47,954 on January 1 to a low of $40,595 on January 9, the lowest level since September 2021.
Marcus Sotiriu, an analyst at the UK-based digital asset broker Global Block, said bitcoin's computing power, while not directly correlated with the price of bitcoin, could show the security of the network. Therefore, the decline in computing power will be unsettling for investors in the short term.
"World second" is difficult to guarantee
As the largest country in Central Asia, Kazakhstan is rich in natural resources, with large reserves of oil, coal and precious metals, and the cost of electricity is relatively low.
The average cost of electricity per kilowatt-hour for companies in the country is only $0.055 (about 0.35 yuan), which is much cheaper than the price of $0.12 (about 0.76 yuan) per kilowatt-hour in the United States.
This means that Kazakhstan can provide a cheap and sufficient supply of electricity for Bitcoin mining, an industry that consumes a lot of electricity.
As a result, Kazakhstan has attracted bitcoin miners from all over the world to open businesses.
Mining center in Kazakhstan (Source: CoinDesk)
However, the rise of bitcoin mining activities has also led to a shortage of energy for local life, and even caused successive power outages in Cities in Kazakhstan.
Kazakhstan's energy minister previously told local media that in 2021, the country's electricity consumption increased by 7% compared to last year, and the surge in demand was mainly due to the increasing number of data centers dedicated to cryptocurrency mining. Mining consumes cheap electricity produced in Kazakhstan, but the cryptocurrencies mined are often sold elsewhere and profits accumulate abroad.
At the same time, this kind of coal power generation also brings a lot of pollution. Of Kazakhstan's current sources of electricity generation, about 70% of Kazakhstan's electricity comes from coal-fired power generation, and most of the remaining comes from natural gas. The country relies on "hard coal" for power generation, and this coal combustion produces a lot of carbon emissions, which is not conducive to environmental protection. Dutch economist Alex De Vries said: "Hard coal in Kazakhstan is one of the most carbon-intensive in the world. "In addition, the local coal-fired power plant is one of the oldest and least efficient in the world.
In order to improve the environment, the Kazakh government had to take measures to severely limit the further expansion of the industry.
In October 2021, Kazakhstan announced the supply of electricity to existing licensed Bitcoin mining farms in accordance with quotas to prevent more power shortages and blackouts. Not only that, but the new laws that Kazakhstan has already enacted also severely limit the electricity that can be used by new Bitcoin farms and set the total amount of electricity available at all new mines to extremely low levels.
In addition, starting in 2022, additional taxes will be imposed on crypto miners.
Experts expect that government restrictions, combined with riots at the beginning of the year, will make miners who want to mine bitcoin in Kazakhstan change their minds. The U.S. may be forced to take on more and more new crypto miners. At present, some agencies have indicated that they have decided to move from Kazakhstan to the United States.
This may not be good news for the Bitcoin market.