Kazakhstan internet shutdown deals blow to global bitcoin mining operation

The global computing power of the bitcoin network has dropped sharply as the shutdown this week of Kazakhstan’s internet during a deadly uprising hit the country’s fast-growing cryptocurrency mining industry.

Kazakhstan became last year the world’s second-largest centre for bitcoin mining after the United States, according to the Cambridge Centre for Alternative Finance, after China clamped down on crypto mining activity.

Russia sent paratroopers into Kazakhstan on Thursday to help put down the countrywide uprising after violence spread across the tightly controlled former Soviet state. Police said they had killed dozens of rioters in the main city, Almaty, while state television said 13 members of the security forces had died.

The internet was on Wednesday shut down across the country in what monitoring site Netblocks called “a nation-scale internet blackout”.

The move would have probably prevented Kazakhstan-based miners from accessing the bitcoin network.

Bitcoin and other cryptocurrenices are created or “mined” by high-powered computers, usually at data centres in different parts of the world, which compete to solve complex mathematical puzzles in a highly energy-intensive process.

In August last year, the most recent data available, Kazakhstan accounted for 18% of the global “hashrate” – crypto lingo for the amount of computing power being used by computers hooked up to the bitcoin network.

In April, before China’s latest clampdown on bitcoin mining, the figure was just 8%.

The hashrate at major crypto mining pools – groups of miners in different locations that team up to produce bitcoin – including AntPool and F2Pool was on Thursday at 1215 GMT down around 14% from its level late on Tuesday, according to data from mining firm BTC.com. Neither pool immediately responded to a Reuters request for comment.

Yet a drop in hashrate is not necessarily supportive for the price of bitcoin.

Bitcoin fell below $43,000 on Thursday, testing multi-month lows after investor appetite for riskier assets fell as the US Federal Reserve leant toward more aggressive policy action.

The more miners on the network, the greater the amount of computer power is needed to mine new bitcoin. The hashrate falls if miners drop off the network, in theory making it easier for the remaining miners to produce new coin.

Kazakhstan’s crypto mining farms are mostly powered by ageing coal plants which themselves – along with coal mines and whole towns built around them – are a headache for authorities as they seek to decarbonise the economy.

The Kazakh government said last year it planned to crack down first on unregistered “grey” miners who it estimates might be consuming twice as much power as the “white” or officially registered ones.

Its energy ministry said last year “grey” mining may be consuming up to 1.2GWt of power, which together with “white” miners’ 600MWt comes up to about 8% of Kazakhstan’s total generation capacity.

The country’s uprising began with protests in the west of the country against a New Year’s Day fuel price hike.