How Kazakhstan’s New Digital Asset Law Could Pave the Way to a Regulated Crypto Economy

Kazakhstan, the world’s third largest Bitcoin mining hub, not too long ago enacted its strong new Law on Digital Assets. On this explainer, we take into account how the legislation, together with a slew of amendments to related laws, has the potential to catapult Kazakhstan to the forefront of digital asset regulation, in addition to having profound implications for the crypto business.

The aim of the legislation is to create a authorized framework for the event of actions for the manufacturing and turnover of digital property and digital mining for the financial growth and competitiveness of the Republic of Kazakhstan. The payments have been thought of in Parliament in an accelerated method, which emphasised their significance for the regulatory authorities of the state. It needs to be famous that this legislation was one of the crucial anticipated and was extensively mentioned amongst specialists. Till that point, the laws of Kazakhstan had been regulating this new business for the nation concisely and even in locations had not revealed the essence of even the idea of ‘digital asset’. There isn’t a room for doubt that the insufficiency and incompleteness of the authorized regulation of the digital property market couldn’t absolutely stimulate the event of the mining business and the influx of actual investments into the financial system of Kazakhstan.

Diving into the content material of the Law ‘On Digital Assets’

Generally, together with the foundations of regulation and licensing of mining actions, the legislation ‘On Digital Assets’ incorporates provisions for gathering info on earnings from such actions for tax functions. The doc additionally establishes various guidelines for the operation of digital exchanges and introduces state management measures on this space. The legislation additionally defines such ideas as secured digital asset, digital mining and digital miner, digital asset trade. It defines digital property as property created in digital and digital type with the task of a digital code, together with with using cryptography and laptop computing, registered and secured by the immutability of knowledge based mostly on the expertise of a distributed knowledge platform. Such property embrace cryptocurrencies, tokens and different digital technique of trade. The legislation additionally supplies for licensing the actions of digital property and can facilitate the operation of mining swimming pools.

Secured digital property

Among the many predominant provisions of the legislation on digital property in Kazakhstan, it may be highlighted that individuals finishing up actions utilizing digital property should receive an acceptable allow from a certified state physique. As a way to protect the safety of Kazakhstan’s monetary system, secured and unsecured digital property aren’t acknowledged within the nation as a way of cost, a monetary asset or a monetary instrument. Taxpayers engaged within the issuance and circulation of secured digital property are topics of economic monitoring.

Digital mining

A separate chapter of the legislation is dedicated to digital mining. Thus, the digital mining exercise itself have to be carried out in accordance with the license issued. It will likely be issued for a interval of three years. The license for digital mining actions is split into 2 sorts: a digital miner with a digital mining knowledge middle; and a digital miner who doesn’t have a digital mining knowledge processing middle, however performs digital mining utilizing tools positioned in a digital mining knowledge processing middle.

Electrical energy consumption by miners

The laws within the area of electrical energy business establishes the process for the acquisition and consumption of electrical power by digital miners. In accordance with the necessities, digital miners will buy electrical power inside the quotas authorised by the Ministry of Vitality from a restricted checklist of sources, together with renewable power, import and use of their very own technology.

Digital Asset Exchanges

The legislation prohibits the circulation of cryptocurrencies and the actions of crypto exchanges in Kazakhstan, excluding the jurisdiction of the Astana International Financial Center. As a way to help the actions of Kazakhstani crypto exchanges, an obligation is steadily launched to promote a part of the cryptocurrency being offered (a minimum of 50% in 2024, a minimum of 75% from 2025) mined in Kazakhstan by way of digital asset exchanges licensed by the AIFC.

Delving into the explanations for the sharp demand for digital property in Kazakhstan or the ‘Great Migration of mining’

All of it initially began with close by neighbor China, the place as much as 70% of the world’s hottest cryptocurrency, Bitcoin, was beforehand mined. We should recall that Beijing’s first steps towards digital property started in 2019, when issues with electrical energy started to appear in various provinces. Lastly, in 2021, the Chinese government began to close the largest mining enterprises and name for a extreme ban on Bitcoin mining and buying and selling, marking the start of the ‘great migration of mining’: mining started to maneuver to different nations with extra favorable circumstances for the deployment of cryptocurrency mining, such because the USA, Kazakhstan and Russia.

In accordance with the Cambridge Center for Alternative Finance, Kazakhstan already accounted for about 18% of the worldwide hashrate (computing energy) of the primary cryptocurrency, bitcoin, in 2021, subsequently, the state took third place within the international bitcoin mining rating. Since then, the variety of registered organizations within the area of digital mining has been rising yearly within the nation.

The choice to maneuver to Kazakhstan was considerably influenced by the issue of low electrical energy costs. However in any case, every little thing has its restrict. Accordingly, destructive penalties quickly proved themselves: instances of energy outages in various settlements, a danger of a possible scarcity of electrical energy.  Thus, there is no such thing as a room for doubt that the uncontrolled progress of cryptocurrency mining has raised the need to control their actions. Because of this, below the amendments to the Tax Code, the mining tax has been in impact since 2022. Plus, the January riots, when the Web within the nation was merely turned off. All this has affected and continues to be persevering with to have an effect on the business. The scenario has induced considerations on the a part of international buyers who’ve managed to spend money on mining and infrastructure tasks in Kazakhstan. Initiatives on the event of mining industries by way of renewable power sources have been additionally proposed.

The report of the International Monetary Fund, revealed on April 11, affirms that the expansion price of cryptocurrency mining threatens monetary stability on the planet. Each the IMF and the Financial Stability Board have repeatedly known as on regulators to take decisive preventive motion. Furthermore, it can’t be stated that measures aren’t being taken: in recent times, the cryptocurrency, which was created as a spontaneous and free from regulation various to nationwide currencies, is more and more changing into the main target of regulators’ consideration. However solely system options can actually stage the scenario. Nationwide legal guidelines are wanted. In opposition to the background of such makes an attempt by the state to take management of the cryptocurrency mining business, the Law ‘On Digital Assets’ was the suitable resolution that meets the necessities of the time.

Does Kazakhstan have the potential to turn into a regional crypto hub in Central Eurasia?

The world is steadily embracing cryptocurrencies and Kazakhstan is not any exception. Following the outcomes of the Digital Bridge International Technology Forum, held on the finish of final 12 months in Astana, it turned clear that Kazakhstan intends to turn into a number one participant within the area of recent digital applied sciences, crypto ecosystems, in addition to regulated and clear digital mining. As an illustration, last year, the President of Kazakhstan Kassym-Jomart Tokayev discussed with the CEO of the world’s largest crypto exchange Binance the potential for making a regional hub of the crypto business in Kazakhstan. Later, a memorandum of cooperation was even signed between Binance and the Ministry of Digital Improvement, Innovation and Aerospace Trade. Thus, in August 2022, the Binance cryptocurrency trade acquired In-principle approval from the AIFC Monetary Providers Regulatory Committee (AFSA) to handle the digital asset platform and supply custodial companies on the Astana Worldwide Monetary Middle. As we will see, if this monetary instrument reveals its continued relevance and safety, then it’s going to actually obtain full authorized recognition within the nation.

In any case, Kazakhstan will profit from this: both the shadow market, which isn’t taxed, or the legalized, cleaner market, which is taxed and expands the chances of utilizing each our fiat cash and cryptocurrencies. Due to this fact, such legislation will create clear guidelines of the sport – it’s going to type a authorized marketplace for digital property, create a authorized foundation for the event of the blockchain expertise business and stimulate funding in digital property in Kazakhstan, in addition to enhance revenues to the state price range.

Aidana Tastanova is a Kazakhstan nationwide and a third 12 months legislation pupil attending the Moscow State Institute of Worldwide Relations below a Kazakh authorities scholarship. 

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