CRYPTO-MINING AND ITS RULES IN KAZAKHSTAN

Regulation of crypto-mining activities in Kazakhstan is currently in its formation stage. However, even today, this activity can be legalized. Thus, we have prepared information on the legal regulation of digital mining in Kazakhstan, based on the current legislation, following the goal of WE Legal to “simplify the complex requirements of Kazakhstani legislation so that our clients can focus on their business development”.

Since 2020, Kazakhstan has been one of the world leaders in a new industry – the digital mining of crypto-currencies (assets). According to data from open sources, in 2021 Kazakhstan ranked second after the United States (35.4%) in Bitcoin mining with a share of 18.1% in the total.

This trend is a result of the relatively cheap cost of electricity and the legal recognition of digital mining activities. According to the Order of the Minister of Digital Development, Innovation and Aerospace Industry of the Republic of Kazakhstan dated October 13, 2020 No. 384/НҚ “On approval of the Rules for informing about digital mining activities” (hereinafter – Order No. 384), mining is the process of performing computational operations with the use of a computer, energy capacities, according to the given encryption and data processing algorithms, which provides confirmation of the data blocks integrity in informatization objects through the blockchain.

 

OPENING A MINING COMPANY

 

Depending on the informing method and obtaining a document for engaging in a particular activity, the activities of organizations in Kazakhstan are divided into three categories: permissive, licensed and notification types.

In accordance with Order No. 384, the commencement of digital mining activities is of a notification nature. In other words, today a potential entrepreneur in this area does not need to obtain a permit or license to engage in digital mining.

However, Order No. 384 establishes a certain algorithm of actions and a list of information that must be officially provided to the ICRIAP of the Republic of Kazakhstan to start digital mining:

Step 1. You must already have an established legal entity in the Republic of Kazakhstan. Basically, a common organizational and legal form is a Limited Liability Partnership.

At the same time, it should be noted that it is possible to open a legal entity in the Astana International Financial Center and engage in digital mining. However, if data processing centers are located on the territory of the Republic of Kazakhstan, digital mining activities must be carried out in accordance with the legislation of the Republic of Kazakhstan. At the same time, it is worth remembering that the AIFC platform remains attractive for foreign investors, since in case of disputes, the parties are guided by the law of England and Wales.

Step 2. According to paragraph 3 of Order No. 384, it is necessary that legal entities inform within 30 (thirty) calendar days about the planned activities (before designing) for the construction of data processing centers (hereinafter referred to as DPC) in the form of an appeal on paper or in the form of an electronic document at ICRIAP RK via Egov.kz.

When providing information, the following must be indicated:

  • planned location of the data center;
  • the amount of power consumed in megawatts (MW) of the data center;
  • the expanding potential for the design electric power capacities of the data center;
  • investment in data center equipment;
  • bank details of the legal entity.

It should be noted that upon the termination of digital mining activities, the entrepreneur is also obliged to notify the ICRIAP about this, by sending a paper letter or an e-mail via Egov.kz.

Step 3. After receiving a request from a legal entity engaged in digital mining activities, the ICRIAP RK informs the Ministry of Energy of the RK, within 5 (five) calendar days, in the form of an electronic document about the planned location, the volume of power consumption in megawatts (MW), expansion potential design electric power capacities of the data center.

Step 4. At the same time, entrepreneurs at existing data centers quarterly, until the tenth day of the next month, submit information on digital mining activities in the form of a paper application or in the form of an electronic document to the ICRIAP. Information should be provided on the current amount of power consumption in megawatts (MW), planned investments in data center equipment, potential investments planned for the current year for the development of data center infrastructure, and the number of jobs for data center maintenance personnel.

For information, it should be noted that from January 1, 2022, a tax on digital mining is in force in Kazakhstan. The tax rate is 1 tenge per 1 kilowatt-hour of electricity consumed in digital mining.

Today, digital mining activities are registered in a notification form by the ICRIAP RK. So, according to the ICRIAP of the Republic of Kazakhstan, as of March 2022, 237 organizations were officially notified of current activities in the field of digital mining and the start of activities in the field of digital mining. At the same time, 27 organizations were officially notified of the provision of infrastructure for digital mining.

At the same time, it is necessary to note the recent speech of the ICRIAP RK officials, in which it is reported that measures are being developed to combat shadow miners. These measures include mobile teams checking suspicious objects, collecting historical electricity data and calculating taxes, and restricting IP addresses.

The most important innovation could be the definition of digital mining as a licensed activity.

Understanding the needs of the market, WE Legal actively monitors changes in legislation in this industry. We are here to help and inform you about all aspects of running a digital mining business in Kazakhstan.

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WE Legal Law Firm

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Aug. 31, 2022, 12:22 p.m.

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