Cryptocurrency mining is an energy extensive process, as recently experienced in Kyrgyzstan where only 45 bitcoin miners drew energy more than 3 local regions combined. About 136 megawatts of electricity was consumed by miners to mine bitcoin. The electricity used to mine was consumed more than by Issyk-Kul, Talas and Naryn regions of Kyrgyzstan, authorities cut off miners power supply.
As the bitcoin mining industry is expanding and maturing with time, people are searching for places with cheap electricity and friendly mining regulations. Due to the absence of crypto mining regulations and the production of low-cost electricity, Kyrgyzstan is a prospective and favorable territory for miners.
Although the country has not devised crypto mining rules yet, Kyrgyzstan already started the process and efforts are being made to devise a framework. Particularly, Kyrgyzstan’s ministry of economy initialized the process by proposing a bill, “On Amending the Tax Code”. The ministry submitted a draft at the end of August 2019 and conveyed details about cryptocurrency mining taxation in the draft.
Cryptocurrency mining taxation can generate massive revenue for the government, thus several options for taxing are looked upon by the authorities. The ministry explored two options but has not finalized any one of them yet. Either income earned through mining or expenses incurred during mining processes would be taxed by the government in the future. So far, the estimated revenue that can be generated from mining is about $4.2 million.
Bitcoin mining might not be lucrative for countries with big economy but it can be a potential industry for small countries. For Kyrgyzstan, whose annual budget is about $1 billion, the contribution of $4.2 million worth via mining can be very helpful.
To explore the advantages small countries have over big ones because of bitcoin mining, BlockPublisher talked on the issue with Steve McNew, a senior managing director at FTI Technology. He replied;
Smaller countries have an advantage here. For one, they’re in a better position to adopt laws and regulations more quickly than large bureaucracies. They are also more flexible and responsive to the rapidly evolving bitcoin market. And while bitcoin is a very small sector for countries like the U.S., it represents a huge opportunity for smaller nations. Clear regulatory guidance, government endorsement, and ‘green incentives’ for equipment manufactures and mining businesses will go a long way in promoting the mining industry.
Kyrgyzstan has not recognized bitcoin mining as an industry yet, this is the reason that it still could not passed any law or regulation for cryptocurrency mining. On the other hand, the country clarified its stance on cryptocurrencies some time back in June 2019. At that time, the country strictly banned bitcoin trading along with other cryptos.
Particularly, National Bank of the Kyrgyz Republic circulated a warning statement, urging people to abstain from bitcoin and other cryptocurrencies. Despite strict rules and regulations, locals never abandoned cryptos and instead pursued opportunities offered by crypto mining. As much as 80,000 technical devices for cryptocurrency mining are still deployed in the country.
Bitcoin mining, often adopted as a business model by miners, holds substantial significance for the world’s largest cryptocurrency by market cap, bitcoin. Due to mining, transactions made on the bitcoin are verified and added to the blockchain. In this way, bitcoin mining maintains the bitcoin network.
Apart from verification, bitcoin mining guarantees complete decentralization. Miners from all over the world try their best to add a new block, this explains why bitcoin is not supervised single-handedly by an authority. Bitcoin miners are motivated to verify a transaction and add a new block because of the reward. Upon completion of every block, about 12.5 bitcoin are awarded to miner.
Despite holding extreme importance for bitcoin, the mining industry was never supported by governments of various countries. For instance, in China, where most mining activity takes place, authorities are pressurizing miners to abandon bitcoin mining. Furthermore, crackdowns in places such as Inner Mongolia has already begun.
As bitcoin mining is highly concentrated in China, measures planned and implemented by Chinese regulators can substantially affect the mining industry. In this regard, BlockPublisher talked to McNew, who is also an MIT trained blockchain and cryptocurrency expert, explained:
At one point, China hosted over 50% of all mining pools in the world and some reports suggest that 70% of all bitcoin were mined in China. It also owned the vast majority of mining equipment manufacturing. With a crackdown on mining in China, bitcoin prices will likely increase, based on decreased production, as miners relocate. As prices increase, entrepreneurs will be motivated to find ways to compete profitably. Meanwhile, manufacturers need to continue to release new, affordable equipment that is fast and far more efficient.
Only time can decide the fate of bitcoin mining industry and its impact on bitcoin price. The influence and effects of policies adopted by different countries to regulate mining would be of great interest not just for crypto community but to masses.