Kazakhstan’s national grid operator has begun rationing electricity to the country’s biggest consumers, likely targeting cryptocurrency mining farms. Facing a sudden energy shortage, officials must be regretting their recent embrace of the crypto industry.

Nur-Sultan has struggled to land on a consistent policy toward cryptocurrencies and mining – the series of electricity-hungry calculations made by networked computers to verify and record cryptocurrency transactions.

Only three years ago, the National Bank called for a ban on trading cryptocurrencies and mining them.

Then, in 2020, parliament passed a law legalising mining and creating welcoming conditions for the industry. The bill introduced the concept of a "digital asset" and laid the groundwork for licensed cryptocurrency brokers to set up shop. The legislation also established rates for taxes to be collected from miners and new, increased electricity tariffs to begin next January.

Speaking shortly after the bill passed, Digital Development Minister Bagdat Musin told a government meeting that 13 mining farms had already begun operating in Kazakhstan with investments totalling 80bn tenge ($188mn). By 2025, mining investments would reach 500bn tenge ($1.2bn), he said.  

Then China offered a reality check this summer when it banned cryptocurrency use and mining on its territory. Many farmers simply moved operations across the border, turning Kazakhstan into the world’s second-largest crypto miner. The country’s share of global mining soared from 1.4% in September 2019 to over 18%, according to data collected by Cambridge University.

The Blockchain and Data Center Industry Association, a lobby group, estimates that as many as 250,000 mining devices are hosted in Kazakhstan today.

Those computers demand vast amounts of power.

"We have seen that our [country's] electricity consumption has literally increased by 7 percent in one year. That's a very big increase," Energy Minister Magzum Mirzagaliyev said on September 30, noting that consumption usually grows by about 2% per annum.

Mirzagaliyev linked the demand to mining and proposed the government limit supplies of electricity to 1 MW per mining farm and to 100 MW for the whole sector.

That suggestion drew criticism from miners. The Blockchain and Data Center Industry Association argued that the government should crack down on illegal miners instead of restricting companies that pay taxes.

On October 15, the national grid operator, KEGOC, announced electricity rationing after three major coal-fired power plants shut down. KEGOC did not directly blame miners, but it used language similar to the energy minister’s and said it was cutting off customers who “over-consume.”

Almaz Kumenov is an Almaty-based journalist.

This article originally appeared on Eurasianet here.