How political turmoil in Kazakhstan hits bitcoin

New Delhi (CNN Business) — The political turmoil in Kazakhstan is affecting the country’s vast bitcoin mining industry.

The Central Asian nation was plunged into chaos as violent protests over rising fuel prices left dozens dead and hundreds injured. As part of the chaos, internet and telecommunications outages have been reported across the country, and that is having an impact on local cryptocurrency mining operations, which are among the largest in the world.

Kazakhstan emerged as a popular mining hub last year after neighboring China cracked down on such activity. Chinese authorities said the restrictions were necessary to protect the country’s efforts to reduce carbon emissions.

What is cryptocurrency mining and why is Kazakhstan so important?

Cryptocurrency mining is a complicated process by which new coins are put into circulation. Mining requires high-powered computers to solve complex mathematical puzzles to create a new “block” on the blockchain. It requires significant computing power and electricity, and Kazakhstan, with its abundant energy resources, has become an attractive alternative to China for miners.

See how the crisis in Kazakhstan affects the world 0:48

Kazakhstan accounted for more than 18% of the global bitcoin network hashrate in August last year, the latest month for which data is available, according to the Cambridge Center for Alternative Finance. That is second only to the United States. Hashrate refers to the total computing power used to mine cryptocurrencies, according to CoinDesk.

It is not yet clear when internet services will be restored in Kazakhstan, so it is difficult to know how deep the impact will be for crypto miners. According to internet monitor Netblocks, connectivity had been down for 36 hours as of Friday morning.

Just hours after the internet blackout, the hashrate saw a 12% drop, tweeted Larry Cermak, vice president of research at cryptocurrency website The Block.

Investors are getting nervous. The price of a single bitcoin fell to $42,000 on Friday, its lowest level since last September. The cryptocurrency has also come under pressure after the US Federal Reserve signaled it could undo economic stimulus more aggressively than investors expected.

Why did the protests start?

The protests in Kazakhstan started over an increase in fuel prices. But there are also other longstanding issues behind the public anger, such as income inequality and economic hardship, which have been exacerbated during the coronavirus pandemic, according to Human Rights Watch.

This uprising could prompt miners to now look elsewhere for their operations, according to Anirudh Rastogi, founder of tech law firm Ikigai Law, which works with cryptocurrency exchanges in India.

The countries that lead bitcoin mining 0:52

“Eventually it will all come down to miners finding the right hub for their activities,” he said. “They need a place with political stability and cheap electricity.”

Kazakhstan has already been struggling to cope with huge demands on its power grid due to the rise of crypto mining, the Financial Times reported in November. He added that power outages in the country have led to the closure of a major crypto mining farm.

According to Rastogi, such problems in major cryptocurrency hubs may force the industry to speed up the adoption of more sustainable technology for mining, which consumes much less electricity.

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