Is crypto still alive in Kazakhstan?
Kazakhstan has been a contentious territory for cryptominers. Especially in the beginning of January, 2022. No internet, no insight into future events in Kazakhstan. To mine or not to mine? Is “crypto” legal or illegal in Kazakhstan? Those questions cryptominers have been asking their lawyers in Kazakhstan.
President Tokayev said “terrorists' attack” and asked Collective Security Treaty Organisation (Russia, Belarus, Tajikistan, Armenia and Kyrgyzstan) for help. However, concerns over the stability of legislation and allegiance of the governmental bodies should not bother cryptominers, since Kazakhstan has never been closer to the Rule of Law State than now. President Tokayev adopts some policies which will support the prospect development of the country.
Controversies in Kazakhstan regarding crypto
The Ministry of Energy of the Republic of Kazakhstan has prepared a draft order "On some issues of electrical installations of consumers engaged in digital mining" at end of 2021, it states that the total capacity of electrical installations for cryptomining should not exceed 100 megawatts (“MW”) and 1 MW for one company . This law has not been adopted yet and some enthusiasts even say that it will not be adopted at all. Moreover, civil legislation acts shall not have retroactive force and shall apply to cases which arise after their entering into force in Kazakhstan. Thus, we consider that the most cryptomining companies engaged in mining cryptocurrency, will keep up mining without troubles. In addition, the government was dissolved and the newly appointed minister of energy may reconsider governmental policies towards cryptominers.
In our opinion, the new government does not want to prohibit cryptomining but to regulate it and get some benefits from it, the government critically needs funds. In support of our opinion, the chairman of the National Association of Blockchain and Data Centers Industry of Kazakhstan, Mr. Alan Dordzhiev, provides approximate data on cryptoenvironment in Kazakhstan. He claims that cryptominers brought 98 billion Kazakh Tenge to the economy of Kazakhstan. According to his estimates, cryptomining can bring more than US dollars 1.5 billion to the economy and over US dollars 300 million in taxes.
Moreover, some cryptominers have been looking for alternative sources of energy. Electricity from private generators run on gas and private renewable energy stations are very promising. Though, such electricity is more expensive. The average cost of alternative electricity is US cents 7-7.5, while regular electricity from power station costs US cents 4-4.5. However, transmission from private station is deemed more stable, since it is not regulated by the governmental authorities. Stable supply of energy means that cryptominers will not suffer from electricity shut downs.
Policies and regulations for crypto
Based on the above written, cryptominers may have developed a vision of a cryptofriendly country. But is it really cryptofriendly? In fact, recently, different web resources claimed that giant cryptomining companies are leaving Kazakhstan because the legislation is no longer loyal to cryptominers. It is partially true, some giants indeed are leaving Kazakhstan, but not for the reasons that have been stated in the internet. Most of this companies paid millions for so called “grey mining” and now they are suffering their bad decision-making. The grey mining does not necessarily mean that cryptomining companies were stealing the electricity, it rather means that their technical conditions for grid connection or land designation were not provided specifically for the Data Centre .
Generally, the cryptomining company needs:
- Technical conditions provided for the Data Centre;
- Lands for industry, transport, communications, space activities, defense, national security and other non-agricultural purposes;
- Power Purchase Agreement with the indicated guaranteed tariff.
It is vital to obtain the technical condition and land specifically for the Data Centre, otherwise the crytpomining company will be banned from electricity purchase and be the subject to administrative fines, in some cases the court may rule to place the interim measures in the way of property confiscation.
How to structure the crypto business?
In order to operate cryptomining in Kazakhstan, cryptominers must register as a legal entity in Kazakhstan. There are currently two options:
1. the first option is to establish a Limited Liability Company (the “LLP”) in the territory of Kazakhstan by the foreign legal entity;
2. the second option is to register a legal entity at the Astana International Financial Centre (the "AIFC") and then to establish the LLP.
In Kazakhstan cryptominers do not need to obtain a license for mining, since mining in Kazakhstan is not prohibited by the law. However, according to the Law "On Informatisation" of the Republic of Kazakhstan dated November 24, 2015 No. 418-V, transactions with cryptocurrency are prohibited. Thus, foreign companies usually open local companies for “hashrate” services only. Thus, the parental foreign company, which was established in the country where the flow of cryptocurrency is legal, will be the owner of cryptocurrency and able to exchange it for fiat currency or use it according to its needs.
On the other hand, the AIFC allows that both mining and the flow of cryptocurrency but requires to obtain a license, since transactions and activity connected to crypto is considered as “regulated activity”. There are 16 organisational forms of legal entities which your company can choose to establish within the AIFC.
In addition, the AIFC is developing its legislation for cryptominers and allows to establish cryptoexchange in its territory. There are several cryptoexchange companies registered at the AIFC but they are not functioning yet but they will start operating soon . Those cryptoexchanges will start their activity once the government and the banks agree on cooperation and let those cryptoexchanges opening bank accounts.
A company at the AIFC may be established online through the Astana Financial Services Authority (the “AFSA”). The AIFC's fee for the registration of the company is approximately US dollars 300.
Currently, cryptominers have two options which allow to perform their activity in Kazakhstan. Companies face various kinds of problems, starting from bank accounts ending with transaction structuring. Our team assists numerous cryptomining companies at their daily activities in Kazakhstan. In particular, we help to register companies in Kazakhstan and the AIFC, we deal with governmental authorities regarding various permits and notifications, customs, dispute resolutions which may arise among cryptomining companies and we assist at finding electricity capacities according to their needs.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.