Inside Kazakhstan Bitcoin mining industry
I recently spent two weeks in Kazakhstan and met with insiders in the country's #bitcoin mining industry.
— Jaran Mellerud (@JMellerud) May 3, 2023
In this thread, I share some of the things I learned? pic.twitter.com/yb3ZVTuJS1
The Central Asian energy superpower Kazakhstan rapidly climbed to second place globally in bitcoin mining in 2021 with 18% of the global hashrate.
— Jaran Mellerud (@JMellerud) May 3, 2023
Now Kazakhstan only generates 4% of the global hashrate. pic.twitter.com/Fg91NMgc14
Kazakhstan is a massive energy producer. It produces vast amounts of oil, gas, and coal, and is the world's biggest uranium producer.
— Jaran Mellerud (@JMellerud) May 3, 2023
It exports all the other energy resources, using coal for internal energy generation. pic.twitter.com/xduufBbvhq
Most mining in Kazakhstan takes place in a handful of industrial cities in the northeast part of the country.
— Jaran Mellerud (@JMellerud) May 3, 2023
There is also some mining with associated gas in the west, close to the oil fields in the Caspian Sea. pic.twitter.com/NsaqGa3HrH
In Kazakhstan, energy producers started mining bitcoin a long time ago. Many power plants are self-mining, as it is much more profitable than selling energy for $0.02 per kWh to the grid.
— Jaran Mellerud (@JMellerud) May 3, 2023
These guys understand that #bitcoin mining is a way to export energy.
Cheap electricity, huge hosting demand, access to cheap Chinese machines, and loose regulation and tax breaks provided the perfect breeding ground for a burgeoning Kazakh mining industry in 2020/2021.
— Jaran Mellerud (@JMellerud) May 3, 2023
Unfortunately, the rapid growth soon started spiraling out of control.
Kazakhstan's Soviet-era electricity system had difficulties accommodating the sudden 1.5 GW demand growth from miners.
— Jaran Mellerud (@JMellerud) May 3, 2023
From September 2021, the grid operator started a regime of electricity rationing – a #bitcoin miner's worst nightmare.
Kazakh miners have struggled heavily for over a year now under electricity rationing and unclear regulation.
— Jaran Mellerud (@JMellerud) May 3, 2023
However, those still operating are more optimistic than in a long time, as a new law was recently introduced, providing regulatory clarity for the industry.
The new law has four consequences for miners.
— Jaran Mellerud (@JMellerud) May 3, 2023
1) Miners need to obtain licenses to operate
2) Miners can only use licensed crypto exchanges and mining pools
3) Miners will be last in line for electricity supplies
4) A mining-specific electricity tax is introduced
With the new law being implemented, the Kazakh bitcoin mining industry is at a crossroads. Either the law will provide the stable regulatory environment needed for the industry to grow sustainably, or its stringent rules will euthanize what is left of the industry
— Jaran Mellerud (@JMellerud) May 3, 2023
What is certain is that Kazakhstan has a power shortage problem that must be solved before the country’s bitcoin mining industry can return to its former gigawatt glory.
— Jaran Mellerud (@JMellerud) May 3, 2023
The only way I see the bitcoin mining industry in Kazakhstan substantially growing in the coming years is if miners develop their own generation capacity.
— Jaran Mellerud (@JMellerud) May 3, 2023
This can be from various sources, but the biggest potential is in associated gas, wind, and solar.
The sudden rise and fall of the Kazakh bitcoin mining industry prove that political risk is always looming in mining.
— Jaran Mellerud (@JMellerud) May 3, 2023
In early 2021, most believed mining in Kazakhstan was safe and hosted their machines there, only to discover it wasn’t safe after all.
Bitcoin mining in Kazakhstan?? pic.twitter.com/b2erXe84DW
— Jaran Mellerud (@JMellerud) May 3, 2023
The SEC’s case against Coinbase has a fatal flaw
1/ If the SEC follows through on its threat to sue @Coinbase, I believe the SEC will lose.
— MetaLawMan (@MetaLawMan) May 3, 2023
The SEC's case has a fatal flaw.
And the problem is entirely of @GaryGensler's own making.
Let me explain…
2/ After he was confirmed to his post as Chairman of the SEC, Gensler testified to Congress, on May 6, 2021, that:
— MetaLawMan (@MetaLawMan) May 3, 2023
THE SEC DOES NOT HAVE AUTHORITY FROM CONGRESS TO REGULATE CRYPTO EXCHANGES.
Watch this ? pic.twitter.com/mk48S36FHm
3/ The problem for the SEC is, of course, that Gensler's testimony was entirely correct.
— MetaLawMan (@MetaLawMan) May 3, 2023
Which agency may be given authority to regulate crypto exchanges is a Major Question that can only be answered by Congress–the SEC can't simply wish its own legal authority into existence.
4/ If the SEC follows through on its threat to sue Coinbase, the Coinbase legal team will surely zero in on the communications within the SEC leading up to Gensler’s May 6, 2021 testimony.
— MetaLawMan (@MetaLawMan) May 3, 2023
All testimony of an SEC Chairman is thoroughly vetted internally before they testify.
5/ So there will be emails, meeting notes, memos, text messages, chats and deposition testimony showing that:
— MetaLawMan (@MetaLawMan) May 3, 2023
There was a consensus within the SEC that it lacked legal authority from Congress to regulate crypto exchanges.
How do I know this?
6/ Because no Chairman in their right mind would testify before Congress that the SEC does NOT have authority to do something unless they were absolutely sure that there was no legal basis at all to claim that authority.
— MetaLawMan (@MetaLawMan) May 3, 2023
7/ If they sue Coinbase, the SEC's lawyers will have the unenviable task of trying to explain away their own Chairman's testimony to Congress and all the documents and discussion that preceded it internally within the SEC.
— MetaLawMan (@MetaLawMan) May 3, 2023
It's a highly embarrassing prospect for the SEC.
8/ Even more damaging will be all the discovery Coinbase will conduct around Gensler's decision to pull a 180 degree reversal and suddenly claim that the SEC DOES have the authority to regulate crypto exchanges in the absence of any Congressional authorization.
— MetaLawMan (@MetaLawMan) May 3, 2023
9/ Imagine the emails, meeting notes, texts and testimony from SEC staff saying essentially–
— MetaLawMan (@MetaLawMan) May 3, 2023
What is he talking about?
We suddenly claim this authority that we told Congress and the American public we Do Not Have?
Where did he get his law license?
(Gensler is not a lawyer)
10/ His unequivocal testimony before Congress and his bizarre 180 degree reversal make Gary Gensler himself the star witness at trial–for Coinbase.
— MetaLawMan (@MetaLawMan) May 3, 2023
I can only imagine this is why @brian_armstrong & @iampaulgrewal have been so clear publicly that they will fight, if necessary.
