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Kazakhstan, Bitcoin, and the Environmental Cost of Crypto

As the rest of the world tepidly welcomed the new year, protests over a New Year’s Day fuel price hike erupted in Kazakhstan. The violent uprising included 164 deaths and thousands of detentions, and led to the deployment of “peacekeeping” forces from a Russia-led military alliance, the Collective Security Treaty Organization (CTSO). Though the unrest began in response to the lift in price caps on LPG, a low carbon fuel used to power most Kazakh’s cars, protestors complaints quickly expanded to include wealth inequality, poor working conditions, and rampant corruption. Kazakhstan’s large oil and mineral reserves have resulted in great wealth concentrated among Kazakh elites, while resentment has grown among the poor and working class people dealing with the environmental fallout: unsafe air quality, polluted water, and even black snow caused by heavy coal mining . Russia has a strong interest in quashing protest movements like the uprising in Kazakhstan that could lead to more transparent government and democratic elections, which could prevent Russia from cheaply extracting or purchasing the nation’s rich natural resources.

But the unrest in Kazakhstan has had an immediate global consequence beyond Russia’s response. As the internet was shut down in a nationwide internet blackout, the country’s flourishing crypto mining industry ceased to function. Bitcoin, the most popular cryptocurrency, is mined when users run software and energy-intensive hardware to verify transactions by solving equations and converting transactions into code for the blockchain (an immutable, accessible record of all transactions). In exchange, they receive bitcoin. After China shut down their major Bitcoin operations in 2021, most mining went to the US and Kazakhstan, where energy was cheap and Bitcoin mining was cost effective. By August 2021, Kazakhstan was responsible for approximately 18 percent of the global “hashrate” (a measure of the computational power per second used when mining) up from only 1.4 per cent in September 2019. Though more cost effective for miners, the Bitcoin boom in Kazakhstan was disastrous for the environment and Kazakhstan’s government. Kazakhstan’s crypto mining farmers are primarily powered by coal mines, increasing carbon emissions as authorities seek to decarbonize their economy, and using approximately 8 percent of the nation’s total generation capacity, further straining their energy infrastructure. But this phenomena is not unique to Kazakhstan: Kosovo banned crypto mining in an emergency response to their energy crisis; Iceland’s national power company is turning away potential crypto miners; and US congressional committees are convening hearings on the issue.

The nature of bitcoin creates a “race to the bottom” for the cheapest energy to maximize profit from a mining operation. But that doesn’t account for the environmental impact. With Kazakhstan’s emissions per energy unit about a third higher than China’s, Kazakh-mined bitcoin has a higher environmental cost. Still, Bitcoin is not the be-all and end-all of crypto currency. The second largest cryptocurrency, Ethereum, is building Ethereum 2.0 (or “Eth2”), a set of upgrades to Ethereum that uses staking – not computing power – to secure transactions. Where as mining requires computing power to solve puzzles to verify transactions, staking works more like a lottery: a user stakes some of their ETH for a “validator” opportunity, in which they have a chance of receiving a reward with more ETH in exchange for storing data, processing transactions, and adding new blocks to the blockchain. Unlike Bitcoin mining, staking does not require energy intensive computer equipment; validators can stake on a laptop or smartphone without straining the grid. But the future of crypto is not just in Eth2. The Crypto Climate Accord is aiming to #MakeCryptoGreen by switching to more energy efficient methods similar to staking, with the goal of making blockchains run on 100 percent renewable energy by 2025 and having the entire cryptocurrency industry achieve net zero emissions by 2040. And innovators are coming up with ideas for greener ways to mine, like moving bitcoin mining near wind farms that overwhelm transmission lines. These innovations also further the true aim of crypto, to be “decentralized” finance, by making it truly less dependent on the power grids (and political winds) of any nation. ​​Still, so long as there’s money to be made in energy-intensive crypto mining, it seems highly unlikely that such mining will end.

Ultimately, both the Kazakh struggle and crypto energy crisis show us that complex environmental problems that require nuanced, multifaceted responses. Seemingly pro-environment actions - like Kazakhstan’s elimination of gas subsidies - can be useless lip service if they fail to address systemic issues like widespread corruption, economic exploitation, and political repression. And something like crypto, which is ostensibly detrimental to the environment, could be realized sustainably, provided crypto leaders, regulators, and investors prioritize environmental impact.

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