Bitcoin, from opportunity to headache

Bitcoin, from opportunity to headache. Kazakhstan will have to import energy to power the computers that "extract" them

The country has seen a strong influx of "miners" after China banned activities to produce digital currencies. To obtain them you need arrays of computers connected in series that consume large amounts of energy (a factor that is beginning to cause concern also from an environmental point of view). Kazakhstan, a country rich in hydrocarbons, could be forced to import energy to cope with peak needs by Davide Cancarini | November 17, 2021

Cryptocurrencies could come to play a more important financial role in the future than the predominantly speculative one they have played up to now. However, their impact on some countries of the world is already well present. And it's not just El Salvador which a few weeks ago was the first country to accept Bitcoin as legal currency. The issue, as well as financial, is energy: a country very rich in hydrocarbons such as Kazakhstan, for example, could be forced to start importing electricity from Russia. Domestic consumption has in fact grown by 8% since the beginning of 2021, compared to average annual increases that usually are around 2%. The reason for this peak is quickly explained.

Since China decided, last summer, to ban the "mining" of cryptocurrencies - that is, that set of complex technological procedures to create the various digital currencies, which require huge amounts of electricity - because too much expensive in terms of energy, the number of mining farms in Kazakhstan has grown exponentially. The exodus to Kazakhstan of these data processing facilities, many of which are illegal, is linked to some peculiar characteristics of the Central Asian country. First of all, the very low cost of electricity, which makes it particularly convenient to operate in Kazakhstan: as a comparison, in December 2019 it was equal to 0.041 dollars per kilowatt hour (Kw) for domestic consumption and 0.049 for production activities, against , for example, an average price in the United States of $ 0.14 per Kw, nearly three times that. Secondly, the cold climate of a large part of the immense Kazakh territory allows mining farms to operate without the risk of overheating the plants and / or reducing consumption for refrigeration. Last but not least, the authorities of the country have so far held a non-hostile attitude towards the cryptocurrency sector, an approach which could however change in the light of the current crisis. For the Nur-Sultan government it is a small consolation that Kazakhstan in recent months has climbed the global ranking of countries with the highest monthly hash rate (i.e. the processing power destined for the extraction of cryptocurrencies). According to what was reported by the Center for Alternative Finance of the University of Cambridge in its latest Bitcoin Mining Map (updated in August 2021), in fact, the post-Soviet Republic is now in second place with a world share of 18%, behind the United States reaching 35%, but ahead of Russia, which stops at 11%. Until June of this year, before the ban, the ranking was dominated by China, with almost 35% global. For the record, Italy stops at 0.05%.

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If until now the Kazakh authorities have seen in the activities related to cryptocurrencies above all an opportunity for economic diversification and an influx of investments in the country, in June 2020 the desire was expressed to attract over 700 million dollars of investments in the sector in the following three years, the energy fallout could change the picture. The rationing of the largest consumers has already begun and there is also talk of measures to limit access to the electricity network to unregistered mining operators or the introduction of a maximum limit of energy inflow for the sector as a whole. However, the crisis of one country can represent an opportunity for another. As reported by Eurasianet, in fact, the Russian state company Inter RAO, an operator of export and import of electricity, immediately proposed to open a supply channel at market prices to Kazakhstan, a costly alternative for the Kazakh authorities. but probably the only one currently viable, considering the approach of the very rigid Central Asian winter. A proposal that is being examined by the Nur-Sultan Ministry of Energy, aware that, as explained by Deputy Minister Murat Zhurebekov during a press conference, for a more systemic solution to the problem, investments in the national grid of at least 1.5 billion dollars would be needed. and at least five years of time. The theme is also environmental, as well as economic. In fact, Kazakhstan occupies the tenth position globally for per capita emissions of carbon dioxide and, considering that most of the electricity is produced internally using coal plants, keeping the price of the same artificially low, the difficulty of satisfying internal demand will delay further the transition to renewable energies. On the other hand, the impact of cryptocurrencies on environmental sustainability is a theme that is increasingly in the spotlight, also because the numbers speak for themselves. Some estimates indicate that the "extraction" of Bitcoin - the most widespread and well-known cryptocurrency - generates between 22 and 23 million tons of carbon dioxide per year, equal to the emissions of countries such as Jordan or Sri Lanka. Furthermore, according to data from the University of Cambridge, the annual amount of electricity needed to produce Bitcoins is almost 122 Terawatt hours, greater than the annual consumption of countries such as Argentina, Holland and the United Arab Emirates.

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El Salvador now accepts Bitcoin: it is the first country in the world to adopt it as legal currency Other countries may soon make the same decision as China, banning mining. This is what, for example, was recently advocated by Finansinspektionen, the Swedish Financial Supervisory Authority, and by the Swedish Environmental Protection Agency. In the midst of COP26, which has just ended in Glasgow with an agreement considered unsatisfactory by many observers, the two bodies have issued a joint statement, in which it is emphasized that the growing interest in renewable energy of cryptocurrency miners is not a positive element but a danger, because the renewables produced should be used for the climate transition of essential services towards sustainable models. Hence the invitation to ban mining on Swedish territory. If the issue divides into contexts in which there are no risks of energy rationing, the issue can only become even more thorny in countries, such as Kazakhstan, where favoring a sector such as cryptocurrency at an institutional and economic level can have serious repercussions. on the daily life of citizens. A dilemma that is currently difficult to resolve.