Bitcoin and the flag of KazakhstanJakub Porzycki/NurPhoto via Getty Images
Kazakhstan shut down its internet nationwide after political unrest sparked by rising gas prices. Among the sectors affected by the outage was bitcoin mining, which has taken off in the Central Asian nation. Other commodities such as uranium and oil also were impacted, with both seeing price spikes days after the uprising. Sign up here for our daily newsletter, 10 Things Before the Opening Bell It’s been days since thousands of protesters stormed the streets of Kazakhstan to express outrage against the rising prices of liquefied petroleum gas, which means it’s also been days since the internet was shut down nationwide, compromising the safety and security of many businesses and residents.
Among the sectors that were hit hardest was bitcoin mining, a burgeoning industry in the Central Asian nation.
Kazakhstan last year became the world’s second-largest center for bitcoin mining after China clamped down on crypto activities, according to data from the Cambridge Centre for Alternative Finance.
Hours after the internet was cut off Tuesday evening, bitcoin’s hash rate dropped by 12%, Larry Cermak, VP of research at The Block, said in a tweet. Hash rate is a key measure of how much computing power is required to support the network and to create new bitcoin.
“The internet blackout likely prevented miners from accessing the bitcoin network, thereby leading to an immediate and steep drop-off in the global network,” John Warren, CEO of GEM Mining, a bitcoin mining firm told Insider.
But Warren isn’t too concerned. He said even if it’s difficult to foresee how the events in Kazakhstan will unfold, bitcoin’s network is resilient, having been able to seamlessly recover from recent outages.
“I think such disruptions won’t have a big impact on it,” he told Insider.
As of Friday evening, internet connectivity in Kazakhstan continued to flatline for the 60th hour despite being briefly restored in some parts of the country for a couple of hours to air the televised speech of its president, according to Isik Mater. She is the director of research at NetBlocks, a watchdog organization that monitors cybersecurity and the internet globally.
Kazakhstan’s appeal to bitcoin miners has a lot to do with the nation’s affordable energy supply thanks to an abundance of coal power, according to Mohamed Elkasstawi, co-founder of Tribal Credit, crypto-focused enterprise payment platform.
“This is a significant advantage to miners who compete in a low-margin industry where their highest cost is energy,” Elkasstawi told Insider.
Bitcoin slipped to a three-month low on Friday. While the drop in hash rate is not directly linked to the asset’s price, the internet shutdown has affected bitcoin’s ability to create more of itself through bitcoin mining. Marcus Sotiriou, analyst at digital asset broker GlobalBlock, called this slide a “short-term spook.”
Going forward, it remains to be seen what the bitcoin miners will do if the situation in Kazakhstan doesn’t change. For Alan Konevsky, chief legal officer at PrimeBlock Ventures, an investment firm focused on digital assets, bitcoin miners in the US will be indirectly affected in positive ways.
“First, less hash power in the network means more room for miners in North America to increase their share of the network,” Konevsky told Insider. “Second, mining companies set up in countries like Kazakhstan and Kosovo because the cost of electricity is much cheaper than in North America. If mining becomes a complete non-starter in these countries, we could see miners re-locate instead of shutting operations, negating the loss of hash power.”
Outside of digital assets, some commodities have spiked in the midst of the turmoil. Prices of uranium and crude oil, in particular, surged on fears of diminished production.
Kazakhstan is the world’s largest supplier of uranium, the most widely used fuel by nuclear plants accounting for about 40% of global output, Insider reported. Prices of uranium jumped about 8% on Wednesday, according to commodity pricing agency S&P Platts.
Brent futures also rose about 6% this week after production at Tengiz, Kazakhstan’s biggest oil field, was reduced on Thursday due to disrupted train lines, Reuters reported. The country is a major oil producer with an output of 1.6 million barrels a day, according to Reuters.
President Kassym-Jomart Tokayev on Friday said order has been “mainly restored” after one of the most intense political upheavals the country has seen since gaining independence over 30 years ago.