Social unrest in Kazakhstan reached a fever pitch last week when the government briefly shuttered internet service and called in Russian paratroopers to crack down on protestors.
The crisis, which began when the government lifted price controls on domestic fuel prices, is still playing out, but one unintended consequence is already clear: the internet shutdown caused a drop in Bitcoin's hashrate, which is the crucial computing power that backstops the decentralized cryptocurrency.
A year ago, social unrest in Kazakhstan probably wouldn't have registered in the crypto world, but in 2021 the country became a major hub for crypto mining.
When China issued a blanket ban on the industry last spring, Kazakhstan's nearby location and cheap energy costs made it an attractive place for miners looking for a new home. It also offered a more favorable regulatory environment than many Western nations that have seesawed in their support for mining activity.
Now it contributes the second-largest share of Bitcoin's hashrate in the world (18 percent, according to the Cambridge Centre for Alternative Finance), behind only the United States (which contributes upwards of 34 percent of the total network, as of August 2021).
The internet shutdown has led some Kazakhstan-based miners to hint that they may be looking for greener pastures, particularly in the West, while others are banking on a return to normal once the social unrest settles in the country.
Indeed, after the internet was turned back on earlier this week, the hashrate mostly bounced back, but it's unclear if Bitcoin miners feel secure in the country.
Bitcoin Comes to Kazakhstan
The shutdown isn't the first time that Bitcoin miners have faced political pressure in the country.
Over the summer, President Kassym-Jomart Tokayev signed a law introducing a formal tax on crypto mining that could disincentivize the low-margin industry from operating in the country.
Then, in the fall, the Ministry of Energy issued a draft law that would cap energy use by miners to one megawatt per mine and 100 megawatts for the whole country, for a period of two years.
The law, which was set to go into effect at the end of last year, only applies to new miners, but many saw it as a shift in the government's posture toward the emerging industry.
These measures were implemented as Kazakhstan, an energy exporter with plenty of access to cheap fossil fuels, reckoned with the overwhelming energy demand coming from miners who were, at certain points, even blamed for energy shortages.
According to the government, miners were using 8 percent of Kazakhstan's electricity — a big bite even for such an energy-rich country. As a more widespread energy crisis drove up energy prices worldwide, the government was placed in an even more difficult position.
Despite these developments, the government hasn't yet ramped up its rhetoric around crypto mining in the heat of the crisis. Whether or not that will come later is unclear.
Limited Impact
Whatever happens to Kazakhstan's mining industry, the Bitcoin network overall has proven resilient amid the tumult. The network's hashrate remains high by historical standards and has mostly recovered from the massive drop spurred by China's ban.
If the most recent crisis ends up reshuffling the geography of Bitcoin mining once again, the network overall is in a strong position to weather the dislocation.
The bigger question is whether or not Kazakhstan follows in China's footsteps and uses the current situation to crack down on the industry for good.
