photo source: Akorda.kz

By: Muhammad Ali Pasha

In March 2019, Kassym-Jomart Tokayev became the president of Kazakhstan after former president Nursultan Nazarbayev stepped down. Blessed with natural resources especially oil and gas, but also keen to diversify its economy due to the changes that are taking place globally in terms of global technological waves, Tokayev inherited a country that was ready to move forward in its economic development. Among the most noteworthy trends that occurred during his rule is the fact that Kazakhstan has become an important player in the cryptocurrency market, specifically Bitcoin mining and regulatory experimentation.

Cryptocurrency is a digital currency that can be sent and received over a distributed network and is based on cryptography, which is a form of digital currency, has already changed the world of finance, providing a variety of opportunities to achieve economic growth but also creating problems with regulation and the environment. As described in my article named “Kazakhstan and Future of Cryptocurrency” Kazakhstan found itself in a situation where the cryptocurrency miners have emerged as an attractive destination due to the availability of energy resources and strategic location of Kazakhstan in Central Asia, particularly after China banned cryptocurrencies in their country in 2021. President Tokayev has attempted to take advantage of this trend, positioning Kazakhstan as one of the centers of digital asset transfer, as well as formalizing the attempts to incorporate cryptocurrency into the state.

My article evaluates the activity of Tokayev on cryptocurrency currency with emphasis on the policies of his administration, particular efforts, their economic and international affect, as well as challenges and the future direction of the career in Kazakhstan. 

The Cryptocurrency Policies and Regulations of Tokayev in Kazakhstan

Beginnings and Prodigious Rise

By the time of Tokayev coming to power, the discourse about blockchain and cryptocurrencies had already been investigated in Kazakhstan. But his presidency signified a shift, and in 2021, the country was the second largest on earth in the mining of Bitcoins. As of August 2021, Kazakhstan had a Bitcoin hash rate share of 18.10 percent worldwide according to the Cambridge Centre for Alternative Finance, thanks to the migration of Chinese miners as a result of the Chinese government prohibiting cryptocurrency mining.

This expansion has been supported by the competitive advantages of the Kazakhstan, which are the low cost electricity through coal and hydro-electric stations, relatively open regulatory environment and a government being receptive of technological innovation. Tokayev was aware of the possible economic advantages such as creation of workplaces and flow of foreign investment as well as consequences of such oversight needed to avoid instability.

Legislative Framework

In Kazakhstan, the situation is different as the bills concerning crypto mining and cryptocurrencies were introduced under leadership of Tokayev. Later, in June 2021, the government passed amendments to the Tax Code, adding a 1-tenge (approximately 0.002 USD) per kilowatt-hour charge or surcharge to the amount cryptocurrency miners consume. This step, which was approved by Tokayev with his signature and intended to lead to revenue and a decrease in the consumption of energy (i.e., to manage the further development of the sector on pragmatic principles).

Moreover, the government has not only required registration of all cryptocurrency miners with the Ministry of Digital Development, Innovation and Aerospace Industry, but also prohibited them. This registration requirement was the whole effort to separate the activities between legal and illegal mining activities which were becoming overwhelming to the national energy grid. Tokayev, who spoke at the Digital Bridge forum in Astana in 2021, stressed that cryptocurrencies are the objective reality, and this reality cannot be disregarded. Their possible impact on our financial system should be measured and a reasonable regulatory atmosphere should be developed.

Central Bank Digital Currency (CBDC) Research

In addition to mining, innovation in digital finance is one of the areas that the Tokayev administration has been keen on. With the assistance of Tokayev, the National Bank of Kazakhstan introduced a pilot project of a central bank digital currency (CBDC) the digital tenge. In a statement in November 2021, Tokayev defined digital tenge as a representative of financial system of the future, which is designed to improve efficiency in conducting transactions, and to decrease its dependence on cash-driven systems. Having been tested in the year 2022, the pilot experimented with cross-border payments and financial inclusion, making Kazakhstan a regional leader in their adoption of digital currencies.

Particular Projects and Measures of President Tokayev

Legalization of mining Cryptocurrency

The initial and yet most significant move which Tokayev took early in his reign was the legalization of cryptocurrency mining in 2021. Such legislation gave a clear legal foundation to the miners and drew companies such as Bitmain and Canaan that moved out of China to Kazakhstan. The decision was able to gain initial success as the industry has been estimated to have gained a billion and a half dollars in 2021 alone, as stated by the Kazakhstan Data Center Industry Association.

Growth of mining 

The blistering growth of mining, however, contributed to some unintended effects. In November of 2021 Kazakhstan experienced shortage of power, where cryptocurrency mining was taking up to 8% of the total power capacity of the country. Such shortages have also been behind protests of the rising energy costs that, in January 2022, turned into a national crisis in several European countries. Tokayev acted swiftly, putting illegal mining under crackdown, with estimates of the measure taking up close to half of all mining.

The government closed down more than 100 of these unregistered mining farms in February 2022, seizing millions of dollars’ worth of equipment. Another concession that Tokayev made was an increase in electricity prices received by miners and quotas on energy consumption that indicated a change in the policy of unrestrained growth to regulated development. The company is the second-largest crypto miner in the world, and he told Bloomberg in 2022 that regulation is needed because the company is not getting a lot of financial returns. 

Tokayev has also advocated the adoption of cryptocurrency into the financial system of Kazakhstan. A pilot program permitting companies to carry out cross-border payments in cryptocurrency has been initiated in the Astana International Financial Centre (AIFC) as mentioned in my other article that is related to the role of AIFC. This move was to cut off reliance with the U.S dollar and avoid western sanctions which were in line with other geopolitical positions in the region. 

Blockchain Development

In addition to cryptocurrency, Tokayev has embraced blockchain technology as an avenue of modernizing the economy. The government has also collaborated with other companies such as IBM and Binance to consider how blockchain technology can be used in supply chain management, digital identity verification, and public administration. All this is due to the vision that Tokayev has regarding Kazakhstan becoming a financial technology leader in Eurasia and Central Asia. 

Effects of the Work of Tokayev on Economy and Cryptocurrency Market of Kazakhstan

Economic Advantages

The polices by Tokayev regarding cryptocurrency have achieved quantifiable economic returns. According to the estimations that were given by the Kazakhstan Blockchain Association, there are at least 54,000 Bitcoins that are extracted each year, and the mining industry has an estimated valuation of 3.5 billion by 2023. This industry appeared to be a major object of foreign direct investment that stimulated the development of local economies in such regions as Almaty and Pavlodar where mining farms were deployed.

Influence in The Global Market

Kazakhstan is one of the countries in the world that emerged as a mining hotspot, which transformed the cryptocurrency industry. The departure of China created a dangerous void which was offset by Kazakhstan because of maintaining the hash rate of the Bitcoin network. Yet, the subsequent process of suppression of unauthorized mining and energy demands caused some miners to immigrate to the United States and Canada, falling to 4 percent of the overall hash rate worldwide by mid-2023 according to Cambridge data.

The experience of Kazakhstan has also impacted discussions of the international community on the regulation of cryptocurrency. Other countries that are considering a similar policy have examined its regulation framework, including that of the United States, which provides economic incentives but puts the management of the energy into the hands of the government.

Future Outlook 

In the future, the government of Tokayev is giving a focus on sustainability. The government itself plans to allocate the renewable energy projects a total of 1.5 billion dollars by the year 2030, additionally, by implementing solar and wind farms throughout the Caspian region, the mining operations are to be powered by it. Such transition would help mitigate environmental objections and make the energy supply stable.

In 2024, Kazakhstan adopted new laws to drive transparency and increase the fight against unlawful actions in the crypto space. The laws enact tougher Know Your Customer (KYC) regulations on exchanges and heavy fines imposed on illegal mining. These initiatives are meant to win back people and get the legitimize investors on board.

According to my previous article related to AIFC, the digital tenge, which will be fully implemented in 2025, would transform and take the Kazakh financial system to another level. It can place Kazakhstan as a model of other Central Asian countries because it decreases transaction costs and allows more trade cross-border.

Conclusion

I would value the initiative of President Kassym-Jomart Tokayev that has placed Kazakhstan in the international limelight, as it is a combination of regulation innovation and economic opportunity. The legalization of mining, the fight against illegal mining activities, and the pursuit of a digital tenge are strategic schemes of his administration to use the digital assets in the development of the country.

The future of the industry in Kazakhstan will hinge on how well Individuals like Tokayev are capable of balancing growth and sustainability and control in the next phase of its operations. His policies have already left their permanent mark on the economy of Kazakhstan and the entire cryptocurrency market where there is much to learn by the countries operating in the context of the digital frontier. Gradually adapting, Kazakhstan under the leadership of Tokayev might get the chance to place itself once and for all in the history of the new world of cryptocurrency.

Mr. Muhammad Ali Pasha is a “Foreign Affairs Expert”. Furthermore, he is an author and poet.

Note: This article is the intellectual property of the writer. If any content will be republished without the consent of author, then it will be considering as forgery and fraud.