MAY 02, 2020    By Didar

Kazakhstan legalizes crypto mining: how you can benefit from the world's second-lowest energy prices

Kazakhstan legalizes crypto mining: how you can benefit from the world's second-lowest energy prices

While the crypto community was concerned about the upcoming Bitcoin halving, something very important happened in the CIS. A new digital technology law was passed in Kazakhstan, regularizing the status of crypto mining and digital assets as a whole. What does this mean for the future of Bitcoin mining?

Kazakhstan is one of the world's cheapest destinations for crypto mining. 1 kWh of energy costs just $0.04, as opposed to $0.13 in the US. This means that the same Antminer S17 with its 56 Th/s would yield a monthly profit of about $162.5 in Kazakhstan – but only $7.95 in the US. The advantages are clear.

Bitcoin mining is on the rise in Kazakhstan, but its legal status has long been up in the air.

On the one hand, mining companies received informational support from such major business associations as Astana International Financial Center. On the other hand, the concepts of crypto assets and mining were absent from the law. Luckily, this has now changed.

Regularizing digital assets

The new Bill About New Technologies has many important provisions concerning digital signatures, e-documents, digital identity, robotics, and blockchain. In particular, it introduces several key notions:

Digital asset: an electronic asset created using the means of cryptography and digital computation, which does not constitute a financial instrument, as well as a digital form of representation of property rights.

Digital mining: carrying out computations using computational capacities and electric energy in accordance with specified algorithms of data encryption and processing, with the objective of verifying the integrity of blocks of data using blockchain.

Digital token: a type of a digital asset that constitutes a digital means of recording, transferring and ascertaining property rights.

Interestingly, the law specified that digital assets are not a means of payment. It also divides them in two classes:

1) Secured – that is, representing a right to some property or services provided by the issuer. This doesn't include any right to a share in the issuing company itself: remember, a digital asset in Kazakhstan isn't a financial instrument.
2) Unsecured – tokens received as a reward for ensuring consensus on the blockchain. This presumably includes Bitcoin, Ethereum etc.

Mining regulations in the new law

Not much is said about mining specifically, but what is said is important:

- An individual carrying out digital mining becomes the owner of the digital assets resulting from the process of digital mining;
- Individuals carrying out digital mining are to inform the competent information security authority about the fact of said mining according to the rules specified by the competent information security authority.

What does this mean for miners?

1) Bitcoin mining is definitely legal;
2) If you mine, you need to inform the authorities about it. The competent authority in this case is the Ministry of Digital Development, Innovations and Aerospace Industry . The law doesn't directly specify how and when the miner needs to report their activity. But this will surely be clarified in the next month or two.

What about taxation?

The new law doesn't say anything about how mining profits should be taxed. However, the Parliament Kazakhstan is currently reviewing the draft of a new cryptocurrency taxation law. It was presented by the Kazakh Association of Blockchain and Data Center Development in December 2019.

The draft proposes not to tax cryptocurrency revenue itself, but rather the proceeds from converting crypto into fiat. That is, you'd need to pay an income tax once you sell your BTC on a crypto exchange.

Once again, this is just a proposal for now. But now that mining is officially legal in Kazakhstan, the lawmakers will certainly turn to the taxation issue soon.

Should you consider mining in Kazakhstan?

The idea of starting a mining farm in Kazakhstan can seem daunting. This gigantic Central Asian country has long been known for its complex bureaucracy and red tape.

However, with the Bitcoin halving so near, miners will need to use every opportunity to cut costs. The best way to do this is to switch to a jurisdiction where energy prices are low – such as Kazakhstan.

An additional advantage is that the coronavirus situation in Kazakhstan is very favorable compared to Russia and most European countries. As of May 1, there were less than 4000 cases and just 25 deaths registered in the country. As a result, the lockdown measures are gradually being lifted.

If you'd like to receive further advice and consultations on Bitcoin mining in Kazakhstan, contact us at info@xive.io We can also assist with hosting your mining equipment in Kazakhstan.