The global computing power of the Bitcoin network has plummeted as the shutdown of Kazakhstan’s internet this week amid a deadly uprising hit the country’s burgeoning cryptocurrency mining industry.
Kazakhstan became the world’s second largest Bitcoin mining center after the United States last year, according to the Cambridge Center for Alternative Finance, after major hub China curtailed cryptocurrency mining activities. Bitcoin price in India stood at Rs. 33.5 lakhs as of 10:20 am IST on January 7.
Russia sent paratroopers to Kazakhstan on Thursday to help put down the nationwide uprising after violence spread across the tightly controlled former Soviet state. Police said they had killed dozens of rioters in the capital Almaty, while state television said 13 members of the security forces had died.
The internet was shut down across the country on Wednesday in what monitoring site Netblocks called “a national-scale internet outage.”
The move would likely have prevented miners from Kazakhstan from accessing the Bitcoin network.
Bitcoin and other cryptocurrencies are created or “mined” by powerful computers, usually in data centers in different parts of the world, that compete to solve complex mathematical puzzles in a very energy-intensive process.
As of August last year, according to the most recent data available, Kazakhstan accounted for 18 percent of the global “hashrate” — crypto slang for the amount of computing power used by computers connected to the Bitcoin network.
In April, before China’s last crackdown on Bitcoin mining, the figure was just 8 percent.
The hashrate at major crypto mining pools — groups of miners in various locations working together to produce Bitcoin — including AntPool and F2Pool, had fallen about 14 percent at 1215 GMT (5:45 p.m. IST) on Thursday from levels late Tuesday. , according to data from mining company BTC.com. Neither pool immediately responded to a request from Reuters for comment,
Crackdown on cryptocurrency mining
Still, a drop in hashrate is not necessarily beneficial to Bitcoin’s price.
Bitcoin fell below $43,000 (about Rs. 32 lakh) on Thursday, testing multi-month lows after investor interest in riskier assets fell as the US Federal Reserve leaned toward more aggressive policy action.
The more miners on the network, the more computing power is needed to mine new Bitcoin. The hashrate drops when miners leave the network, theoretically making it easier for the remaining miners to produce new coins.
The cryptocurrency mining companies in Kazakhstan are mostly powered by aging coal plants which themselves – along with coal mines and entire cities built around them – are a headache for authorities as they attempt to decarbonize the economy.
The Kazakh government said last year it planned to crack down on unregistered “grey” miners who are estimated to use twice as much power as the “white” or officially registered miners.
The Ministry of Energy said last year that the “grey” mining industry can consume up to 1.2 GWt of power, which, together with the 600 MWt of the “white” miners, is about 8 percent of Kazakhstan’s total generation capacity.
The uprising in the country started with protests in the west of the country against a fuel price hike on New Year’s Day.
© Thomson Reuters 2022
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