Kazakhstan Issues Regulations Concerning Mining Activities

Kazakhstan’s President Approves New Regulations Concerning Crypto Mining

The Parliament of the Republic of Kazakhstan had approved a law called ‘On Digital Assets in the Republic of Kazakhstan’. This means that Kazakhstan is now ready to legalize the issuance and circulation of crypto within the country.

The proposed law was pending approval of Kassym-Jomrat Tokayev, President of Kazakhstan who subsequently signed the document on 13th February 2023. Now the law has officially been adopted and implemented simultaneously.

When the law came into the Parliament, it also proposed amendments to various other laws in the country, in particular the Tax Code.

This means that the regulatory authorities in the country have been closely monitoring the crypto sector.

Through this law, Kazakhstan’s Government is planning to regulate crypto mining and the circulation of minted crypto in the country.

This way, the country will be able to deal with the issues and problems pertaining to cryptocurrency mining projects.

So far, it is a very effective approach made by the regulatory authorities in Kazakhstan to regulate cryptocurrencies.

Most importantly, the law wanted to lay down a competitive environment in the country without affecting the mining industry’s expansion.

Salient Features of the Approved Law

The law was approved by the country’s parliament in January 2023 for the purpose of empowering state-backed regulators to strictly monitor crypto activities.

A licensing mechanism has hence been introduced which pertains to crypto service providers and mining.

Prior to licensing, Kazakhstan was allowing miners as well as crypto service providers to operate on the basis of registration only.

However, this registration process has now been eroded and licensing system has been adopted as a substitution for registration.

It has been clarified in the law that a license would remain valid for three years from the date of issuance. At the expiry of the license, the applicant can however apply for renewal of the license after payment of the license renewal fee.

The same mechanism shall apply to crypto miners as well as to those who sub-let mining infrastructure to third parties.

Then there is a separate set of rules which specifically deal with ‘mining pools’. The mining pools also would be required to obtain licenses.

The law provides with regard to mining pools that all the equipment of mining pools shall be kept within the country.

The law hence specifically restricts mining pools to using hardware or software which is physically installed at a place outside Kazakhstan.

This policy has been introduced so as to ensure compliance with information security rules applicable under the laws of Kazakhstan.

Rules Pertaining to Energy and Power

The law further provides clarity with regard to the utilization of energy by the miners.

For instance, the law suggests that the miners would be required to purchase electricity directly from the national grid. However, the energy should be provided to them by the national grid depending on the availability of ‘surplus’.

In case the surplus is not available, the miners can be denied the provision of electricity.

In the meantime, price caps with regard to energy have been subsequently withdrawn. Hence there shall be no pre-determined tariff rate. Instead, the tariff rate shall be determined based on market standards and principles.

No More Subsidized Power for Miners

Kazakhstan became the fastest-growing crypto mining industry because of the fact that it was supplying subsidized energy to miners.

It was this incentive that attracted worldwide miners to Kazakhstan and the country soon developed itself into a ‘global mining hub’ in 2021.

However, subsidized energy brought challenges and one of them was the shortfall in consumers’ electricity demand.

The authorities in Kazakhstan blamed the mining industry for creating an electricity shortfall and insisted that regulations be implemented.

Thereafter, the Government imposed exorbitant tariff rates so as to control the mining activities.

Kazakhstan’s Government is hoping that the new law would be benefitting for both, i.e. the Government and the miners.

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