When Kazakhstan became one of the world's largest crypto mining hubs five years ago, the boom strained the country's power grid, and the government's response resulted in most miners either leaving the country or going underground.
Now the Kazakh government is looking to bring it all back home by offering tax breaks and legal certainty.
The Kazakh government signed a decree designed to encourage citizens to declare cryptocurrency holdings, move them onto regulated domestic platforms and integrate digital assets into the country's economy.
The authorities are offering private investors a tax break on personal income from digital asset transactions for three years, provided the assets were not connected to fraud, money laundering or linked to unlicensed crypto services.
The decision has opened the door to making it easier for miners to operate in the country — and for everyone to profit.
Crypto boom cut short
Cryptocurrency mining uses powerful computers to solve complex mathematical problems in order to verify and add transactions to a blockchain — the ledger on which a cryptocurrency's transaction history is recorded.
Miners who successfully complete them are rewarded with cryptocurrency deposited directly to their personal crypto wallets, which in some cases like Bitcoin can bring in significant profits.
The downside is that the process consumes a large amount of power because the computations require sustained processing.
After China banned Bitcoin mining in 2021, many miners began looking for new locations with low-cost energy.
At that point Kazakhstan rapidly became the second-largest Bitcoin mining location after the US. Many tried to get in on the profits, with people even putting mining equipment on their balconies.
Some went so far as to masquerade the mining farms as vegetable storage facilities, greenhouses or AI data centres at abandoned Soviet-era industrial sites to conceal their massive electricity consumption.
Aeral view of Alem Crypto Mining, a legal mining company in the north of Kazakhstan. - Copyright: Alem Crypto Mining company
The country did not get to enjoy the crypto bloom for too long. The rapid influx of miners placed an enormous burden on the country's ageing electricity grid.
In October 2021, surging electricity demand contributed to outages at three power plants in northeastern Kazakhstan, while rolling blackouts affected several regions. At peak, cryptocurrency miners were consuming an estimated 8% of Kazakhstan's total electricity output.
Authorities responded by repeatedly tightening regulations on electricity consumption and digital asset legalisation, leading to miners' departure abroad and the proliferation of illegal operations.
Kazakhstan never outright banned crypto mining, keeping its options open to potentially harness its potential in the future.
According to Kazakhstan's financial regulator, Astana International Financial Centre (AIFC), Kazakh citizens own approximately 1 million crypto wallets.
The AIFC, modelled on Dubai's DIFC financial free zone, has functioned as Kazakhstan's sandbox for financial innovation and serves as the regulatory home for digital asset companies operating in the country.
This figure is nearly four times the number of users registered on authorised local exchanges, which in March reached 256,900.
Bringing crypto assets back onshore
Attracting crypto owners back to their home countries with incentives and simplified legal frameworks has turned into a global trend in recent years, experts say.
The UAE, Hong Kong and Singapore have implemented similar tax measures alongside clear licensing, regulations and access to banking services, bringing in additional revenue.
The decree also addresses the energy question that triggered Kazakhstan's earlier mining crisis.
