The value of Bitcoin is collapsed to 36 thousand euros and perhaps the Kazakh protest also has something to do with it: many observers have linked the increase in the presence of illegal cryptocurrency miners in the country with the government’s decision to tax energy consumption and street riots.
But what does Bitcoin have to do with street riots? Since when China has outlawed the production and marketing of cryptocurrencies, many companies in the sector have moved to Kazakhstan to take advantage of favorable regulation and a low cost of energy produced from non-renewable sources. This helped to increase electricity consumption by 10% e induced the government to raise energy prices with the imposition of new taxes. Taxes that have led to a real rebellion of the citizens, with dead and wounded, to which were added the legal and illegal miners who would have blown the fire on the riots.
With a boomerang effect: to silence protests, the government has blocked the internet, at the same time blocking the ability of miners to mine cryptocurrencies, preventing the blockchain from being updated. Result? The global computing power of the Bitcoin network suddenly plummeted by 14%, with a global slowdown in Bitcoin transactions and a substantial difficulty to undermine new ones.
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“Only in October there were blackouts in 6 regions of the country – he explained Sergio Bellucci, essayist and technology expert – and several analyzes have traced the blackouts to the increased energy demand of mostly illegal miners, who have extraction plants in their homes or even on farms. The Kazakh government had announced that it would increase production and implement distribution logics to deal with the energy crisis also through the import of energy from a neighboring Russian electricity company. He also had a tax of 1 tenge (0.002 euros) per kWh has been announced for the activities of miners of energy used. However, the latter initiative would have been borne only by the regular miners and not by the abusive ones. Then came the targeted cuts in the distribution of energy for these activities “.
Again: “The energy crisis in Kazakhstan certainly adds to an underlying social and political crisis, but the famous spark must be sought in the huge interests of the mining world and related cryptocurrencies, which have become a structural asset of the financial world not only in terms of cryptocurrency speculation, but for all the smart contract activities now implemented by the banking and financial system. “
Until a few months ago, 18% of world mining took place in Kazakhstan, making its hashrate rise to second place in the world: it is the overall value of the computing power necessary for mining Bitcoin and for the functioning of the blockchain of which cryptocurrencies are the prize for the addition of new blocks to the blockchain which certifies the transactions that took place on the Internet.
Second Daniele Monteleone, cryptocurrency pioneer and entrepreneur, that’s not quite the case: “It’s true, the outage due to blackouts coupled with rising prices is causing Kazakh miners to collapse. The Bitcoin protocol takes a couple of weeks to self-adjust, i.e. to correct the level of difficulty. So in the meantime producing blocks will take longer with increasing transaction cost. Later, coming to missing a significant amount of hashrate, producing a Bitcoin will cost less, therefore those who produce them can also sell at a lower price, keeping the profit “.
But then does the collapse of Bitcoin depend on this? What predictions can we make? “Those who can will take refuge in alt-coin (alternative coin of the Pos or stable type), causing Bitcoin to lose further dominance. In the short term, however, the market will absorb some of these shocks, offering interesting volatility. Kazakh miners will have to evaluate how convenient it is to stay in the business with the new market conditions in the medium term “.
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The future of mining: what could happen?
What scenarios open up? “At this point: the miners remain in the Asian country, albeit with higher costs, and this will in any case affect the market with a slight upward push; the miners drop out, then they will start selling off their infrastructure to foreign countries. This is not a tragic fact in this industry, as the cost of mining hardware has already recouped in the first year of operation, and then miners can resell the hardware at virtually any price. Again, where the hashrate moves from a country that was more competitive (Kazakhstan) to another country which is less so, it affects the market on the upside “. Again: “This is why in both cases the market will reabsorb the drop (limited to the Kazakh impasse), without considering also other global factors that are determining its trend”.
Not everyone agrees on the future of mining and mining effects of this crisis. Other analysts believe that the collapse in value of Bitcoin and associated cryptoassets is more likely an investor reaction to the Fed’s decision to raise interest rates sooner than expected. But this crisis suggests that corrections are needed, starting with the use of clean energy for digital and public and private blockchains.
Again according to Bellucci, “the Kazakhstan crisis will be remembered as the first revolt directly triggered by the interests of the digital world, which is then a substantial part of today’s real world. The world is now one and, as for emigration, national borders and global responsibilities (think of the contribution to CO2 production of these activities, ed) can no longer rely on local choices “.
It is clear that blockchain and cryptocurrencies are at the basis of a revolution that has affected the whole of society, even if we do not all realize it: smart contract, NFT market, Web 3, savings and consumption. The perfect example is cryptoassets behind decentralized finance, which allows you to recreate financial services without the need to involve a third party, such as a bank.
As he told us Orlando Merone, country manager of Bitpanda, “The blockchain is essential for cryptocurrencies because it allows to maintain a distributed ledger of data containing the various transactions, a decentralized ledger through which it is possible to exchange digital assets, store and process sensitive information. Bitcoin and cryptocurrencies are just one of the many applications of this technology: with it you can sign contracts, verify digital identities and much more “.
Perhaps also for this reason, what has happened could become the push for a better regulation of cryptoassets, stablecoins and digital currencies in which states are beginning to invest. According to Merone, however, it is a sensitive topic: “It remains to be seen what the relationship will be between what should be the Central Bank Digital Currency and the other stablecoins. Overall, we believe the European Union is in a good position to lead by example and establish fair rules to create a truly single market for cryptocurrencies that safeguards consumer interests and financial stability. The EU should welcome and promote the innovative potential of DLT technology, the opportunities that it will be able to create as well as the new generation of European investors, both individual and institutional ”.
We are talking about the Mica, Market in Crypto assets regulation? “If properly legislated, MICA has the potential to become a vital element in the EU’s overall mission to prepare and equip the economy for the digital age. Most importantly, MICA will provide complete harmonization across the EU. The new regulation will provide a legal classification of crypto-assets and separate rules for their issuance. It will offer a one-time license and a passport to provide services throughout Europe, thus facilitating the growth of a single crypto-asset market “.
Considering the dynamic development of blockchain technology and cryptocurrencies themselves, an important element of the future legislation will be the flexibility of its principles, allowing community rules to adapt to changes in the market, both in its technological and legal aspects: This is the main request raised by the entities already active on the market, including Bitpanda – added Merone – The key to the success of the regulation will be to find the right balance between the declared political objectives, in particular as regards the promotion of an environment that remains open and favorable to innovation”.
The world of cryptocurrencies is still a maturing ecosystem, so it is difficult to predict in which direction and to what extent it will develop, but the emergence of decentralized finance and the creativity of the ecosystem are, according to Merone, a positive signal in terms of opportunities: “One of the main challenges remains to ensure that the cryptocurrencies and decentralized finance contribute to the effectiveness and security of our financial system”.
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