Some states have legalized digital assets and allowed their use as a means of payment, while others have banned transactions with coins and tokens. Cryptocurrency in Kazakhstan under the current legislation does not serve as a means of payment and financial instrument (as of November 2021). The only monetary unit in the country is the tenge.
Kazakhstan legislation on cryptocurrency
Until 2020, there was no official opinion on virtual money in Kazakhstan. They were used with risk, as the state did not regulate the crypto market. In the summer of 2020, the Law was adopted, which laid the legal foundations in this sphere (from June 25, 2020 № 347-VI).
2 different approaches are used:
- Basic for the whole country.
- For the jurisdiction of the International Financial Center “Astana” (IFCA).
Cryptocurrency is recognized in the RK, which has the status of property. Coins are called “digital assets”. At the same time, they are divided into 2 categories:
- Secured.
- Unsecured.
The issue of the latter category within the country is prohibited, except in cases stipulated by other acts. At the same time, the circulation of secured assets is regulated at the legislative level.
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Another nuance is related to mining. Despite the ban on the circulation of unsecured coins, mining is allowed. According to the legislation, cryptocurrency belongs to the miner. And it is impossible to have digital assets in the country. Therefore, the owner of the farm for mining leases his equipment to a non-resident of the country. A foreign person mines bitcoin or altcoins on the equipment of a citizen of Kazakhstan and becomes their owner. Mining is carried out on the territory of the state, and the right of ownership comes outside its borders, the laws are not violated.
International Financial Center “Astana” is a special platform, it functions on the basis of English law. Conditions have been created to attract participants from other countries, who receive benefits for 50 years. The center can issue regulations. The approach to cryptocurrency differs from the general one for the country. As defined by the IFCA, digital assets:
- Serve as a unit of account.
- Are traded on special platforms.
- Are exchanged to and from currency.
- Are distinct from fiat and electronic money.
All of the above functions are performed under the project community agreement. In MFCA digital assets are not divided into secured and unsecured. The mining of coins is allowed to residents.
Conditions for mining in the country
After the adoption of prohibiting laws in China, the main pools based in the PRC began to search for new jurisdictions. The criteria put forward are:
- Authorization of mining and turnover of cryptoassets at the official level.
- Affordable electricity.
Kazakhstan meets these requirements. Within the MFCA jurisdiction, mining is allowed, electricity is available, and taxes are low. With China’s share in bitcoin mining falling from 75% to 0%, Kazakhstan has moved up to the 2nd place in the world. The country mines 18.1% of BTC (as of November 2021). Against the backdrop of this mining growth, the RK authorities are introducing an additional electricity tariff of 1 tenge per kilowatt from January 1, 2022.
According to Alan Dorjiev (president of the Association of Blockchain and Data Center Industry in Kazakhstan), there are 200-250 thousand mining devices operating in the country. This equipment is not all new. Interest in cryptocurrency mining began during the first boom in 2017. White and gray companies are working.
Limits on investment
The government is engaged in the regulation of the cryptocurrency market. In addition to the division into 2 legal fields (general and MFCA), separate restrictions and regulations are adopted.
According to the Astana Financial Services Agency, there are limits for retail players since October 26, 2021. As required by the regulator, one can buy crypto-assets for different amounts:
- Up to $100k or 10% of one’s annual income with proof of legitimate finances.
- Up to $1k per month without proof.
At the same time, the MFCA offered 2 times the size for investment. However, such a draft law was rejected. The regulator connects restrictions with protection from high-risk operations, which include investments.
Taxation
There are 2 jurisdictions in the country to regulate the cryptocurrency market. Taxation depends on the legislation – general or MFCA.
The specifics of regulation of the virtual money market are summarized in the table:
| General legislation | MFCA |
|---|---|
| Sale of unsecured cryptocurrency. There is no concept of “digital asset” in the tax legislation. Accounting norms are used. Since crypto-assets are recognized as property, an analogy with stocks is made. The sale of a coin or token outside the Republic of Kazakhstan is considered income. | All transactions with cryptocurrency are regulated by the MFCA itself. The center’s legislation defines digital assets as investments. Since cryptocurrency does not belong to securities, there are no tax benefits for income from their sale. A resident of MFCA can mine, exchange, issue, transfer crypto-assets, including abroad. In this case, all tax liabilities, except for VAT, arise on the value increment (formed when the asset is sold outside the RoK). |
| Sale of secured cryptocurrency. Taxation at the sale outside the state for these assets is carried out as indicated in the previous paragraph. The regulation of the sale of cryptocurrency within the country differs. Taxation depends on the real asset that serves as collateral. |
How to earn on cryptocurrency in Kazakhstan
Residents of Kazakhstan have access to all the world’s trading platforms, services for investing. Income brings and mining coins. In addition to the peculiarities of cryptocurrency regulation in Kazakhstan, there are common problems: requirements for system performance, high power consumption.
Pitfalls
The main obstacles to the development of mining in Kazakhstan are related to energy. Almost 90% of all electricity is produced by thermal power plants. This is a big blow to the environment, so the country’s government is planning a gradual transition to renewable sources of electricity.
Another problem is related to the requirement of the National Security Committee of the Republic of Kazakhstan to obtain a permit for importing mining equipment. Its design includes encryption devices that must be registered with the KNB.
Many companies prefer to rent the relevant equipment from data centers. At the same time, there is already a shortage of capacity, and power outages occur. The government counts about 40% of gray miners who are connected to transmission lines illegally. They are not taken into account when calculating the load on the grid.
According to the Ministry of Energy of the RK, the total electricity consumption by miners is 1 GW. This value is comparable to the capacity of the country’s largest thermal power plant. The ministry has prepared an order to limit electricity consumption to 100 MW. Each new farm is not allowed to spend more than 1 MW within 2 years from the date of launch. This decision is valid from the beginning of December 2021.
The Parliament proposes to create a register of mining farms for accounting and control. It is planned to introduce increased electricity tariffs for companies that mine coins in Kazakhstan, but the income is received abroad.
Minister of Energy Magzum Mirzaliyev said that white miners should not worry. They are accounted for and consume 600 MW. Gray companies spend about 340 MW for their activities. The official said that there are miners that are not yet known about, but they work and consume electricity. The ministry plans to bring them into the white zone.
Conclusions
Kazakhstan is still lagging behind other countries that have started regulating the cryptocurrency market earlier. Coins and tokens are officially banned, but there is no liability for their use. There is a separate jurisdiction, the Astana International Financial Center, where more progressive laws to regulate the crypto market are being actively developed.
Kazakhstan is concerned about the increase in electricity consumption due to the work of mining companies by 8% in 2021 alone, which amounts to 1.2 GW. To regulate this issue, they want to create a register of miners, raise the cost of electricity for them (by 1 tenge per kW from January 1, 2022).
The rapid development of cryptocurrency mining in Kazakhstan may lead not only to the collapse of the energy system, but also to legislative restrictions. But if the public sector manages to find a solution, Kazakhstan will be able to remain a leader in mining for a long time to come.
Frequently Asked Questions
❓ What is MFCA for?
Mining is developing in Kazakhstan, while other areas of cryptocurrency use are lagging behind. MFCA was created to regulate the industry and develop trading, exchange services, investment funds.
📝 Why has mining in Kazakhstan been developed only since 2020?
Previously, cryptocurrency was also mined in the country, but the low exchange rate of bitcoin and altcoins did not allow to earn a lot. There were few miners.
🔎 Where is it more convenient to mine coins, in large cities or rural areas?
Most often farms are located closer to centers of cheap electricity.
🧾 What professions are important for industrial coin mining?
Engineers, electronic equipment specialists, electricians are needed.
📌 What percentage of the total number of Chinese miners in Kazakhstan?
It is impossible to determine their exact number, not all of them register their activities. According to Alan Dorjiev, president of the Blockchain and Data Center Industry Association, there are about 4 thousand mining devices in the country.
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Author: Saifedean Ammous, an expert in cryptocurrency economics.
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