Kazakhstan internet shutdown sheds light on a big Bitcoin mining mystery
The curtain just lifted on one of the many mysteries surrounding Bitcoin: How much is being produced using super-dirty coal in Kazakhstan. We knew that the Eurasian nation was a major destination for miners, and that the refugees recently expelled from China were flocking there. Still, it was difficult to establish how much of all the world’s coins Kazakhstan was minting. Clouding the picture was the government’s recent moves to severely restrict the mining boom that was plaguing its cities via rolling blackouts.
On January 5, the world got at least a rough answer. Violent protests erupted over the soaring cost of fuel and the nation’s autocratic rule. President Kassym-Jomart Tokayev sacked his government and declared a state of emergency. Apparently on his orders, the largest telecom provider shuttered the internet to interrupt communications among the opposition’s ranks. When the web goes down, miners can’t communicate with the Bitcoin network. The “hash rate,” the random codes that win fresh awards of Bitcoin, collapses. A few hours into the outage, Larry Cermak of the crypto news and research site The Block tweeted that a full 12% of Bitcoin’s worldwide computational power had vanished. His data showed sharp declines for a number of producers with operations in Kazakhstan. The hash rates for AntPool, Poolin and Binance Pool all fell between 12% and 16%.
Those numbers could still be low, says Alex de Vries, a Dutch economist whose website Digiconomist follows Bitcoin’s carbon footprint. He notes that the 12% drop occurred within just the first few hours of the web shutdown. A top source for data on nations’ share of Bitcoin output is the Electricity Consumption website sponsored by Britain’s Cambridge University. In its last update, logged in August, Cambridge estimated that Kazakhstan was hosting 18% of all Bitcoin mining, second only to the U.S. “The number could be that large,” says de Vries. “But what’s important is that it’s extremely hard to get accurate numbers on each nation’s shares, and we now know that Kazakhstan accounts for at least 12% of global production, and probably a lot more. Over a 24 hours period, we could get close to the 18%. This confirms the general direction of the Cambridge estimates.” We may get higher final tally as the hash rate keeps dropping as the outage takes its full toll.
The electricity powering Bitcoin in Kazakhstan is some of the world’s dirtiest
Kazakhstan generates almost 70% of its electricity by burning coal, and most of the balance from natural gas. Its relies on “hard” coal, a variety that sends oversized quantities of carbon into the atmosphere. What’s more, its plants that burn the stuff rank among the world’s oldest and most inefficient. Much of Kazakhstan’s output replaces the mining that exited China when Beijing imposed banished the industry in September. Kazakhstan’s combination of aging plants and carbon-heavy coal cause much more pollution per unit of energy than China was generating. The International Energy Agency reckons that Chinese coal emitted around 1000 grams of CO2 per kilowatt hour, and that Kazakhstan’s hard coal variety coughs up far more, around 1500 grams. “Its carbon intensity is some of the worst in the world,” notes de Vries.
In some ways, the outage in Kazakhstan is a replay of the mini-crisis that ravaged Chinese miners last year. The world knew that remote Xinjiang Province was a major venue for miners, but had no clear window into how much the region was producing. The issue was important: Coal was practically the sole source of their power in the region––and views varied greatly on the portion of Bitcoin mined worldwide with fossil fuels. Then in April, the coal mine fueling the Province’s Bitcoin mines flooded. Overnight, the global hash rate fell by one-third. The veil lifted, exposing that in winter months, that giant portion of all Bitcoin was being generated by coal.
Now we know that 12% or more of the world’s coins are minted in Kazakhstan using coal that belches half-again as much carbon.
In October, Kazakhstan announced that it would ration electricity to existing, licensed Bitcoin mines in an effort to forestall more shortages and blackouts. A new law severely limits the amount of power fresh entrants can use, and caps the total that all newcomers can deploy at extremely low levels. “The internet shutdown shows something else,” says de Vries. “That the government hasn’t had much success limiting Bitcoin mining.”
Bitcoin’s price didn’t fare well during the upheaval in one of its key bases. From mid-afternoon on 6 pm EST on January 5, the lead crypto dropped from $46,500 to $43,670, or over 6%, reaching its lowest level since late September. It’s not clear disruption in central Asia caused the drop. But Kazakhstan is already souring on Bitcoin. The crisis exposed that its efforts to curb mining and save power so households and businesses don’t go dark is failing. Those are hardly good tidings for Bitcoin’s New Year.
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