Kyrgyzstan’s cryptocurrency mining, once a significant revenue stream for the Central Asian country, has been slashed by half in 2024. According to local reports, the government has collected only 46.6 million soms, about $512,600 in mining taxes, compared with 93.7 million soms, or $1 million in 2023.
Most of this dramatic decline in mining tax revenues is contributed by electricity cost rises. The higher the energy cost, the greater the reduction in profit margins from cryptocurrency mining. Additionally, Kyrgyzstan charges 10% for mining, assessed based on electricity bills-a sector very vulnerable to changes in the price of energy.
The Kyrgyz government released the 2024 budget document, and the cryptocurrency mining tax contributed about $535,000 in taxes to the country’s economy. The cryptocurrency mining tax rate in Kyrgyzstan is 10% of the electricity bill. https://t.co/asUSsqBbsB
— Wu Blockchain (@WuBlockchain) December 27, 2024
In December, the government of Kyrgyzstan called on its public to use less electricity due to record-high winter demand. This situation is made worse by Kyrgyzstan’s reliance on aging hydroelectric infrastructure. The energy situation has forced many crypto-miners to scale back activity or move to more friendly markets.
Rising Energy Costs Strain Kyrgyzstan’s Crypto Mining Industry
Crypto mining, or the process whereby immense computational power and large quantities of electricity are utilized to validate transactions in blockchains, had been a high-growth industry in Kyrgyzstan. The historically low cost of energy within the country has drawn national and international miners alike, netting vast revenues through tax.
However, the recent rise in the price of electricity has strained the sector and forced a drop in activities. This decline reflects broader energy challenges that are also affecting households and industries across the country.
The World Bank estimated that Kyrgyzstan relies on hydropower for more than 90% of its electricity generation. The capacity of the system to meet the growing demand has been limited by aging infrastructure and fluctuating water levels.
Besides, Kyrgyzstan imports electricity in the peak period of its consumption, making it further vulnerable to volatile prices within the global energy market. From this perspective, higher tariffs have been imposed as one of the measures aimed at the partial financing of infrastructure upgrade and financial deficits of the energy sector.
While necessary for long-term sustainability, these measures have made electricity less affordable for crypto miners and reduced the viability of the sector.
Kyrgyzstan is not alone in feeling the energy-related impacts of crypto mining. For instance, some neighboring countries, like Russia, have already imposed seasonal bans on mining in regions of high consumption to prevent possible power cuts. These moves oar to the greater challenge of balancing household and industrial use of energy, to which cryptocurrency mining is the newest addition.
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