Cloud Hosting

In light of the sudden changes in the crypto mining situation inKazakhstan with the restrictions on Bitcoin computational processesby the Chinese government that escalated into the recent strictmeasures implemented in June 2021, Kazakhstan's bitcoin mininghas dramatically surged into third place on the global market.

In order to further its advantage on the global mining market,Kazakhstan has started its actions towards the creation of relativeadvantages in mining conditions while also maintaining closecontrol of the situation.

In this article, we would like to describe the recentdevelopments in the legislation of the Republic of Kazakhstan onthe matters of cryptocurrency and digital mining, as well as toshed the light on the opportunities of registering in the AstanaInternational Financial Centre ("AIFC") for foreigncrypto miners.

It is important to draw your attention that the legal regulationof cryptocurrency and digital mining is still in the process ofdevelopment in the Republic of Kazakhstan, and this article as ofthe date of publication is solely based on the recent developmentsand current legislation of the Republic of Kazakhstan.

1.1. The AIFC as an international hub for development of thedigital asset market

The AIFC is a financial hub located in the Republic of aKazakhstan. It is a special territory defined by the ConstitutionalStatute of the Republic of Kazakhstan. The main objective of theAIFC is to ensure a friendly ecosystem for foreign investments andsecure independent regulation. This special territory operates onCommon law framework secured by the independent Court headed byChief Judge Lord Mance and other British judges.

Since its establishment in 2017, the AIFC became a centre ofattraction for crypto mining companies, which was facilitated by anofficial legalization in 2020. For instance, such large players asBitfury, Powerry, Minebest and others registered their legalentities in the AIFC jurisdiction to guarantee the Rule of Law.

1.2. Climate

Kazakhstan possesses a considerable amount of cheap electricityin Central, Northern and North-Western regions and has a sharplycontinental climate characterized by a cold and windy weather,which are one of the main fundamental conditions for data centersand mining farms operation.

Miners have an opportunity of benefitting from favorable weatherconditions, cheap electricity and legal status by opening legalentity in the AIFC and operating data centers in Kazakhstan orcontracting mining hotels for hosting.

1.3. Legal status

In July 2020, Kazakhstan officially recognized Bitcoin as adigital asset that could be accounted as any other commodity. TheAIFC Fintech rules allow establishment of crypto exchanges andbuilding other regulated activities based on digital assets.

1.4. Developments in the regulatory regimes for digitalassets and mining

The significant improvements in Kazakhstani regulatory regimesfor mining and digital assets were achieved. As such, thelegislation of the Republic of Kazakhstan established a legalregime for mining and cryptocurrency. To date, there are 17 miningfarms that currently officially operate in the territory ofKazakhstan.

At present, the Ministry of Digital Development, Innovation andAerospace Industry of the Republic of Kazakhstan together with theAIFC and the Kazakhstan Association of Blockchain and Data CenterIndustry are in the stage of drafting the blockchain technologiesand crypto industry regulations that would allow to achieve thesmooth operation of crypto exchanges in the AIFC territory.

In addition, due to the increased demand from mining companies,in 2021, certain amendments to the Tax Code were presented with theintroduction of a tax for digital mining in the amount of 1 tenge(0.00232 USD) per 1 kW/h from January 1, 2022. This legislativedecision should not be interpreted as an obstacle for the newminers migration to Kazakhstan, but rather as another step towardslegalization of crypto mining and data centers (mining farms),which is considered as a necessary measure taking intoconsideration the restrictive control over miners around theworld.

As such, in order to obtain a special permit or license to carryout digital mining in the Republic of Kazakhstan, the following hasbeen established:

To point out, Kazakhstani legislation does not have any rules orrestrictions governing operations with hash rates. Therefore,operations with hash rates are legal in Kazakhstan.

However, please kindly note that Kazakhstani legislationcharacterizes cryptocurrency as a form of property, not a financialinstrument or means of payment. The Kazakhstani law prohibits theissue and circulation of cryptocurrency in Kazakhstan.

1.5. IT park Astana Hub for Bitcoin miningactivities

The AIFC has established the IT park for Bitcoin miningactivities providing 0% tax regime (CIT, VAT, salary taxes 0%)fordata centers who registers and resides in the IT park Astana Hubunder the premises of the AIFC (only royalty of 1% of the annualturnovers has to be paid).

1.6. Aspects of electricity price and the percentage of cleanenergy

While establishing a legal status to data mining is a crucialand vital element for attraction of new investors, the lowelectricity prices in Kazakhstan areone of the mostsignificant factorsin this regard.

Since cryptocurrency mining farms consume considerable amountsof electricity and bitcoin mining rewards decreased by 50 percentin May 2020, finding cheap sources of power is particularlyessential. Besides being cheap, Kazakhstan's electricity pricesare not subject to high volatility and mostly remain stable duringthe year in comparison to prices in China that are subject toregular seasonal changes.

Uninterrupted availability of electricity in Kazakhstan is alsoanother reason that makes it one of the most appealing destinationsfor data mining. Consequently, one of the world's biggestmining centers managed by Enegixcompany is planned tobe opened inEkibastuz, Kazakhstan.

To date, there are 116 power facilities that produce renewableenergy in the Republic of Kazakhstan, with an installed capacity of1685 MW, which accounts for 3% of the total electricityproduced.Since there is no need for electricitytransportation and storage, most electricity consumption comes fromthe mining industry allowing to rapidly develop theindustry.Construction regulations and experienced contractorscan assist miners to set up a turnkey mining farms within 3-4weeks.

Kazakhstan intends to increase the share of renewable energy intotal electricity production to 6% in 2025, to 10% by 2030, and by2050, alternative and renewable energy sources should account forat least half of all energy consumption according toKazakhstan's obligations on Low-carbon and Climate-sustainableDevelopment under the Paris Agreement. At present, around 20% ofenergy is a natural gas, which is cleaner than coal, since gasmainly is a by-product of oil extraction.

Furthermore, apart from 0% tax regime for crypto miners and amild construction regime for mining farms construction, Kazakhstanhas a very reliable power grid system operating on several reservesources of energy.

1.7. Opportunities for Chinese crypto miners

The Chinese authorities prohibit crypto miners to make exodusfrom China, but Chinese miners often inquire our Team onregistration and relocation issues in the AIFC. There are severallisted mining firms that are already operating and could be checkedthrough the economic activity codes of the registered legalentities: 62032 information and communication equipmentmanagement activities, 63111 hostings and relatedactivities.

1.8. Government support

Although this new field has generally been welcomed, the noveltyof the industry as well as the lack of a clear and determinedregulatory environment led to uncertainty within some governmentagencies towards security and viability of the cryptocurrencymarket.

However, nonetheless, the recent developments inKazakhstan's crypto industry proved otherwise, and as wasindicated earlier, in 2020, the new amendments to the legislationof legitimized mining and digital technologies wereestablished.Suchkey definitions as"cryptocurrency", "digitalasset", and "digital mining" were alsoinitiated into the Law of the Republic of Kazakhstan "OnInformatization".In addition, this Law stipulatesthat onlyasset-backed cryptocurrencies can legally operate inKazakhstan, except in cases that will be introducedlater.Therefore,although unsecured cryptocurrencies arenot officially legal, it is still not clear whether the governmentwill impose a complete ban on unbacked digital currencies such asBitcoin.

In general,the current developments signals the interestof Kazakhstan in this industry, which could be seen intheestablishment ofthenewlegal regulationthat provides a clearer legal framework for the circulation andoperation of digital assets and legitimized mining. As part of thevision of Kazakhstani government, this was initiated with theaim of attracting high-tech industry investments for promotion ofeconomic growth and diversification.

1.9. Bank Accounts for Cryptocurrencyin Kazakhstan

The Kazakhstan Association of Blockchain and Data CenterIndustry informed that crypto exchanges registered in the AIFCmight shortly start operating with local banks which would allowtheir clients to openly and officially work with cryptocurrency.Such an opportunity is planned to be realized after the launch ofthe pilot project of the AIFC with second-tier banks.

According to the intended outline, in order to get on the cryptoexchange, an investor is required to be the legal account'sowner in one of the banks registered with the AIFC. From thisaccount, the entrepreneur will have the opportunity to buy acryptocurrency, transfer money, and carry out various operationswith it on the exchange market.

The AIFC pilot project is estimated to last for one year for thepurposes of Kazakhstani government to assess and evaluate thebenefits and risks of digital assets. Although the circulation ofdigital currency in Kazakhstan is currently prohibited, it isprojected that the ban on cryptocurrency in Kazakhstan might becomeless categorical or might even be cancelled after the successfulcompletion of the pilot project.

1.10. Kazakhstan doubles mininginvestment1

Kazakhstan is planning to double its digital currency mininginvestment, and is continuing to develop its central bank digitalcurrency (CBDC). The feasibility and opportunity of introduction ofthe CBDC tenge by the Central Bank of Kazakhstan is currently beingdemonstrated, and the AIFC intends to assist in a trial andestablishment of a legitimate ground for Kazakhstan to implementits digital currency.

The AIFC's covenant includes smart contract, cryptocategorizations, and digital wallets. Kazakhstan earlier hasalready developed a way to store cryptocurrency and distribute itto normalize the procedures via a proficient platform. In June2020, Kazakhstan adopted a development plan for blockchain anddigital technology.

We believe that our specialists' experience and knowledgemay be of great help to the organisations that are planning toregister in the AIFC. The registration of the company in the AIFCtakes about 3-5 business days upon the preparation and receipt ofall necessary documents.

ServicesOur team has an extensive experience in provision of legal serviceson the registration of a company in the Astana InternationalFinancial Centre (AIFC), including all post-registrationservices.Once the company is registered, we will be happy to act as a legalcounsel in connection to its ongoing activities in the Republic ofKazakhstan. Contracting for hosting could also be done with theassistance of our Team through the AIFC, which operates as a"one stop shop" for foreign investors.About GRATA International

GRATA International is the largest independent Kazakhstani lawfirm, and one of the leading law firms in Central Asia and theCaspian Region. GRATA has provided a wide range of legal servicesin these regions for almost 30 years.

250 professionals in 19 countries advise major international andlocal ?rms, funds, banks, insurance ?rms, construction companies,mining and crypto mining companies, airlines, light and heavyindustry companies, telecoms, pharmaceuticals and others.

GRATA International is recognized as one of the leading law ?rmsin all jurisdictions where it operates by major international legalranking agencies: The Legal 500, Chambers Global, ChambersAsiaPaci?c, IFLR1000, Who's Who Legal, Asialaw Pro?les andaward of China Business Law Journal.

Footnote

1 http://www.asiatimes.com

The content of this article is intended to provide a generalguide to the subject matter. Specialist advice should be soughtabout your specific circumstances.

Read the rest here:

The Legal Regulations And Perspectives Of Cryptocurrency In Kazakhstan: Opportunities Of The Astana International Financial Centre For Chinese Crypto...