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Authorities Uncover Illegal Bitcoin Mining Farm In Kyrgyzstan

Federal authorities have uncovered a large illegal Bitcoin (BTC) mining site in Kyrgyzstan being operated by government officials of the Free Economic Zone.

The illegal Bitcoin mining site is located on the territory of Bishkek Free Economic Zone and was set up there to take advantage of the cheap electricity in the country. The raid was coordinated by the country’s top anti-corruption watchdog, The State Service for Combating Economic Crimes who posted videos of the raid on YouTube.

The large illegal mining farm is reportedly being operated by government officials and the executives of the Free Economic Zone headed by Duishen Irsaliev.

Further to the discovery, the Kyrgyzstan regulator said it will launch an investigation to determine how the mining equipment was delivered and the grounds upon which electricity and internet were supplied.

Illegal Bitcoin Sites are not Uncommon in Asia

The discovery of an illegal mining site in Kyrgyzstan, a Central Asian country is not uncommon in the region. Recently, Chinese police discovered an illegal Bitcoin mining operation that was buried underneath a local cemetery in the city of Daqing, Heilongjiang province.

The graves were used as a decoy for a large scale Bitcoin mining operation and a raid launched based on reports of electricity shortage in the area allegedly caused by the mining farm.

The prevalence of illegal Bitcoin mining activities in the region once prompted the Iranian government to declare a 20% reward to anyone with information that can help uncover illegal Bitcoin mining farms.

Bitcoin Mining is Somewhat Lucrative

Bitcoin mining companies have been turning good profits over the last few years. Bitmain, the largest Bitcoin mining equipment manufacturer reported over $300 million in revenue for the first 4 months of 2020 despite the COVID-19 pandemic disruption to market supply chains.

Following its filing for IPO back in November 2019, the world’s second-largest Bitcoin mining hardware manufacturer Canaan Inc raised $90 million in the US further showing the surge in demand for Bitcoin mining products.

Kyrgyzstan Shuts Down Over 500 Illegal Crypto Miners

Kyrgyzstan has taken another proactive approach to stem the rise of illegal cryptocurrency mining activities in the country after disrupting the activities of a network of unauthorized mining outfits.

As reported by the local media channel, 24.Kg, the State Committee for National Security of Kyrgyzstan (SCNS) has revealed and suppressed the illegal activities of about 500 Bitcoin mining farms. The State Committee for National Security said:

“More than 500 mining farms illegally connected to power grids have been revealed. It should be noted that the mining farms subsequently lead to a shortage of generated electricity since one set of equipment consumes about 1,500-3,000 kilowatts per hour,”

The operation of illegal crypto mining farms is not uncommon in Kyrgyzstan. Back in August last year, Blockchain.News reported that authorities uncovered a large illegal mining farm in the territory of Bishkek Free Economic Zone. The mining farm was notably set up there to take advantage of the cheap electricity in the country. Beyond the illegality of these busted crypto mining operations, the activities as a whole have come under fire for their impact on the environment.

This environmental consideration forced Chinese authorities to push out miners, both legal and illegal, out of the country. The eviction notice issued fueled the largest migration of Bitcoin’s computing power from China, with miners in search of new hotspots to set up camp. While Kazakhstan, the US, and Canada remained the top destinations, countries like Kyrgyzstan with relatively cheap electricity are also not ruled out.

Today, countries or regulators are somewhat torn on how to embrace crypto-mining investments, a move that has pushed miners to begin exploring alternative power sources. For example, the North American mining stakeholders are notably considering the switch to solar energy systems. Should these renewable energy sources become the standard, a new sustainability model will be ushered in, and perhaps, countries like Kyrgyzstan will become more crypto mining friendly.

Kyrgyzstan Government Increases Electricity Tariff for Crypto Miners

The authorities in Kyrgyzstan recently revised their Medium-Term Tariff Policy (MTTP) for electricity and heating, leading to power tariffs in the nation for cryptocurrency mining increase by 12.5%.

The authorities have made such decisions due to the huge energy consumption required in the cryptocurrency mining process. The administration announced the Medium-Term Tariff Policy for Electricity (2021-2025) on September 30 after being proved by the cabinet of ministers.

Kyrgyz government recently updated electricity tariffs involving different groups of consumers based on their needs. The officials listed cryptocurrency mining activities as major power consumers alongside the alcoholic beverage’s manufacturing industry and gold mining.

Surely, the Kyrgyz government seeks to ensure the power sector’s sustainable and stable function with the aforementioned measures.

The authorities will implement a set of the following regulations concerning electricity rates of cryptocurrency mining. Firstly, Kyrgyz authorities have categorized mining firms or cryptocurrency firms as one of the 14 groups put into consideration in the revision scheme.

Cryptocurrency miners will be charged 2.52 Kyrgyzstani som or about $0.03 for each kilowatt-hour of electricity consumed. The authorities will adjust prices every year to reflect the average annual inflation level in the four years during 2021-2015, covered under the new tariff policy.

Lastly, the officials will update the revised tariffs based on the additional operating costs of the country’s thermal power plants and distribution costs.

The revised tariff comes into effect after Kyrgyzstan’s Ministry of Economics announced the need to impose a 15% tax on the cost of electricity consumed to mine cryptocurrencies in August 2020.

Kyrgyz Attracting Miners

After China banned cryptocurrency mining earlier this year, Kyrgyzstan has become one of the hotspots for the mining pools.

Since Kyrgyzstan is an attractive mining destination, cryptocurrency mining has become one of the causes of the energy crisis in the region.

The latest statistics by the World Bank shows that the population’s access to electricity in the country had fallen in 2019 when compared to 2017 and 2018. The consumption of energy per year for Kyrgyzstan is around 10.52 bn kWh.

As a result, Kyrgyzstan is making efforts to regulate the cryptocurrency sector. Last year, the National Bank of the Kyrgyz Republic introduced licensing requirements for crypto exchanges to protect local investors.

In August, Kyrgyzstan’s State Service for Regulation and Supervision of Financial Markets introduced a new regulatory framework to give legal status to crypt exchange. Authorities have also put forward a draft proposal seeking to regulate cryptocurrency exchanges so that to comply with existing ALC (anti-money laundering compliance) /CFT (combating the financing of terrorism) measures. The new framework is also speculated that will generate new income sources for the nation’s national budget.

Kyrgyzstan's Rising Tide in Crypto Mining Tax Revenue

There has been significant progress made in the cryptocurrency mining business in Kyrgyzstan, a nation that has abundant hydroelectric resources. A significant amount of 78.6 million soms, which is equivalent to around $883,000, was collected by the government of the country from cryptocurrency miners during the first eleven months of the year 2023. Compared to the 11.1 million soms (equivalent to $133,200) that were collected over the same time period in 2022, this amount represents a substantial rise. There was a fluctuation in tax receipts throughout the year 2023, with the lowest amount being 738,000 soms ($8,284) in February and the highest amount reaching 11.6 million soms ($130,212) in August.

One of the most important aspects of this expansion is Kyrgyzstan’s immense water resources, which include glaciers, lakes at high altitudes, and rivers that stretch for more than 35,000 kilometers. A significant portion of these resources are not being exploited to their full potential, since crypto miners mostly depend on hydropower for their operations. In point of fact, the majority of small hydroelectric power station owners in Kyrgyzstan are connected to cryptocurrency mining farms in the country. This synergy between natural resources and technology innovation is establishing Kyrgyzstan as an emerging hotspot in the world of cryptocurrency mining, comparable to nations such as Costa Rica and Paraguay who are also in the process of developing their mining industry.

In July of 2023, Kyrgyz President Sadyr Japarov gave his approval for the building of a cryptocurrency mining facility at the Kambar-Ata-2 Hydro Power Plant. This development contributed to the momentum that was already there. Through the implementation of this plan, the government demonstrates its dedication to maximizing the economic potential of its natural resources. On the other hand, it is important to remember that cryptocurrency miners in Kyrgyzstan are charged a rate that is five times more than the general population for the use of power.

In spite of the optimistic income forecasts, the production of cryptocurrencies in Kyrgyzstan encountered difficulties in 2023. These difficulties included low dam fill levels and constraints on electricity distribution as a result of contracts with neighboring nations. Because of these concerns, miners were occasionally compelled to import electricity, which brought to light the challenges that still need to be addressed with regard to infrastructure. Nevertheless, by the beginning of October 2023, the sector had used a substantial 17 million kWh of power.