Cryptocurrency prices have fallen as a result of the crisis in Kazakhstan
An uprising on New Year’s Day against a fuel price hike in western Kazakhstan has had a severe knock-on effect on cryptocurrency. With the internet being shut down in the country yesterday, Wednesday 5, the global computing power of the bitcoin network has dropped dramatically as a result.
According to the Cambridge Centre for Alternative Finance, last year, only behind the United States, Kazakhstan became the world’s second-largest bitcoin mining centre. This came about as a result of China’s clampdown on cryptocurrency mining activity in the country.
In what the Netblocks monitoring site called ‘a nationwide internet blackout’, Kazakhstan’s nationwide internet was shut down on Wednesday. As a result of this action, it will have prevented cryptocurrency miners from Kazakhstan from accessing the bitcoin network.
Bitcoin, and other cryptocurrencies, are created or ‘mined’ by powerful computers. These are typically located in data centres in different parts of the world, competing to solve complex mathematical puzzles in a process that requires a large consumption of energy.
Last August, according to the latest available data, Kazakhstan accounted for 18 per cent of the world’s ‘hashrate‘. This is the jargon that cryptocurrencies use to refer to the amount of computing power used by computers connected to the network of bitcoins. Before China’s action last April on bitcoin mining, this figure stood at only eight per cent.
At 12:15pm today, Thursday, January 6, according to data from mining company BTC.com, the hashrate of the main cryptocurrency mining pools was around 14 per cent below its level of last Tuesday 4. This pool, which includes AntPool and F2Pool, comprises the groups of miners in different places that partner to produce bitcoin.
A drop in the hashrate is not necessarily supportive for the price of bitcoin. Bitcoin dropped below $43,000 today. After investor appetite for riskier assets fell as the US Federal Reserve leaned toward more aggressive policy action, this will be another test after multi-month lows.
When there are more miners on the network, more computing power is required to mine new bitcoins. In theory, if miners leave the network – as is the case now that Kazakhstan is offline – the hashrate drops, making it easier for the remaining miners to produce new coins.
Cryptocurrency mining farms in the Asian country are causing a headache for the Kazakh government as they attempt to decarbonise the economy. These farms are primarily powered by aging coal plants, as are the coal mines and the entire cities that surround them.
Kazakhstan’s government calculated last year that unregistered ‘gray’ miners could be consuming twice as much energy as officially registered, or ‘white’ miners, and threatened to take action against them.
The Ministry of Energy declared that as much as 1.2 GWt of energy could be consumed by these ‘gray’ miners. Combined with the ‘white’ miners total consumption of 600 MWt, between them, they accounted for almost eight per cent of Kazakhstan’s total generating capacity, as reported by larazon.es.