HomeCryptoNew Block Reward Mining Law in Kazakhstan Shocks Miners

New Block Reward Mining Law in Kazakhstan Shocks Miners

After China banned crypto mining in 2021, many miners transferred their facilities to neighboring country Kazakhstan. Not only didoes the transcontinental nation have lenient regulations when it comes to crypto mining, but it also hads one of the cheapest electricity prices in the world. It wasis a win-win for miners, and it wasis understandable why they flocked to Kazakhstan.

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The influx of miners propelled Kazakhstan, along with the United States and Russia, into the top three largest BTC hash providers. However, the dramatic increase in energy consumption becamewas too much for the country’s decades-old power grid. As a result, it forced the country to import power and ration local supplies, while law enforcement continuedcontinues to crack down on illegal mining. 

To address this issue, Kazakhstan’s parliament, Majalis, has enacted the legislation titled “On the Digital Assets of the Republic of Kazakhstan” to oversee block reward mining activities. Lawmakers promotedare promoting the measure as bringing much-needed reforms to the crypto mining industry, which has previously operated without a legal framework.

Electricity Restriction Strikes

The new law will establish new licensing bodies that will categorize miners based on whether they manage their own facilities or lease them from other enterprises, paying special attention to whether or not the business has a quota. Legislators are allocating only 500 megawatts (MW) worth of energy consumption to registered mining facilities, shocking miners at the small amount of energy allocation. Industry participants argue that the anticipated electricity is largely insufficient because miners require over 1,000 MW to run their business.

The legislation is also compelling miners to purchase electricity at a regular rate from grid operator KOREM, a government owned firm. Miners claim this will only serve to add unnecessary bureaucracy to the process. 

“They can buy electricity only if there is a surplus in the general energy system and only through the Kazakhstani operator of the electricity and power market. For this volume, the price restrictions will be removed and the trade will be carried out only with market mechanisms,” Kazakhstan Senator Bekbolat Orynbekov stated in an interview.

On top of limiting miners’ access to power, the new legislation will also impose a corporate tax, and the preferential taxation that large companies in special economic zones used to enjoy have also been abolished. Currently, a new tax regime for miners is set to take effect in 2023, potentially resulting in double taxation for the miners.

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“The government wants more control and taxes,” said one miner amid the growing uncertainty in the industry. “Trust is shaken, many investors left Kazakhstan and canceled expansion plans.”

Even before the law was enacted on January 19, many miners had already fled the country in search for friendlier jurisdictions. Others see a silver lining in the storm, claiming that the allocation at least shows that the government does not plan to impose a blanket ban on block reward mining.

Scaling Key Solution to High Energy Consumption of Crypto Mining

An overlooked aspect of block reward mining is that its energy consumption will continue to climb as the unscalable BTC network makes it difficult to handle huge blocks of transactions.  BTC currently has a low throughput capped at only seven transactions per second (TPS), and requires a substantial amount of energy to add a 1MB block composed of about 2,000 transactions to the blockchain. 

Its developers have mostly concentrated on building off-chain solutions to boost scalability; however, this has led to swings in the cost of transferring and trading BTC because of the network’s restricted block size and throughput.

In contrast, BSV, one of the three Bitcoin implementations together with BTC and BCH, restored the original Bitcoin protocol and unlocked limitless scaling in its blockchain. This means that throughput and block size can be increased to meet consumer demands, while also offering the lowest transaction fees. 

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At present, BSV is already processing overprocessing an over 50,000 TPS at 4GB blocks with fees of just 1/100 to 1/1000 of a cent. A 4GB block is estimated to be composed of over 2.5 million transactions. Compare spending 1,000 MW to add 1MB block with 2,000 transactions to the chain to consuming the same amount of electricity to process a 4GB block with 2.5 million transactions. It is clear that when network usage is higher, electricity consumption per transaction and data block drops dramatically. 

It is like spending $1 for a piece of candy, and then goingthen, going to another store to find out that spending the same amount can buy 4,000 candies. This is how wide the gap is when measuring the energy consumption of the unscalable BTC network to the scalable BSV Blockchain. Mining on a scalable blockchain not only increases profit through a higher number of transactions, but also enables it to become energy efficient.

Lawmakers should be made aware that just because mining consumes a gargantuan amount of energy does not automatically mean that it is energy inefficient and bad for the environment. Continuously scaling a blockchain network is key to justifying its energy consumption.
To learn more about the energy efficiency of a scalable blockchain, register and attend the London Blockchain Conference that will be held on May 31 to June 2 at the Queen Elizabeth II Centre.

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