Running head: BITCOIN IN KAZAKHSTAN

Should Bitcoin Be Used as a Legal Currency in Kazakhstan

Anel Naukan

(102207227)

IUBH

Pathway Program

FAE140: English Writing 2

Mr. David Roberts

Due date: July 31, 2023

Word count: 973

Table of Contents

1. Table of Contents 2

2. Should Bitcoin Be Used as a Legal Currency in Kazakhstan? 3

2.1. Background Information 3

3. Why Should Bitcoin Be Used as a Legal Currency? 4

4. Why Should Bitcoin Not Be Used as a Legal Currency? 5

5. Conclusion 5

6. Reference List 6
BITCOIN IN KAZAKHSTAN 3

Should Bitcoin Be Used as a Legal Currency in Kazakhstan?

The Bitcoin mining process has become more popular in the last few years

worldwide. Most of the Bitcoin mining market share is owned by the USA, followed by

Kazakhstan. Kazakhstan has become one of the biggest crypto-mining countries in the world,

taking second place in the Bitcoin hash rate market with nearly 20% (Guest, 2023). There

were a few reasons why Kazakhstan had an opportunity to have a significant amount of hash

rate in the Bitcoin mining market and attracted investors to establish their crypto-mining

machines. In 2021, China banned cryptocurrency entirely and defined it as illegal; therefore,

operating crypto-mining companies had to look for an alternative. Kazakhstan had many

areas and offered a comparatively low setup cost for crypto miners, which was favourable for

miners. Using and installing Bitcoin mining equipment usually needs large spaces. Another

reason was that Kazakhstan had cheaper and comparably stable prices for electricity

compared to China, as prices there depended on the year's season. The cost of electricity is a

significant indicator in the Bitcoin mining process, as its expenses represent a symbolic

portion of the profit from cryptocurrency mining. Kazakhstan provided crypto-miners with

the required amount of electricity the coal-burning process produces. Despite the recognition

and widespread production of Bitcoin throughout the world, the utilisation of Bitcoin as a

legal currency is not a general practice, and it changes depending on the country (Freeman

Law, 2023).

Background Information

Bitcoin was the first digital currency launched in 2009 by an anonymous person or

group of people with the nickname Satoshi Nakamoto (BTC Satoshi, 2023). Since then, it has

been the most eminent cryptocurrency compared to other digital currencies due to its

outstanding price increase and unpredictability (Kunimoto & Kakamu, 2022). As it is a

digital currency, it does not have a central government to be controlled or navigated; it means
BITCOIN IN KAZAKHSTAN 4

that there is no need for intermediaries such as banks, and users are the ones who conduct and

decide the direction of the market. Besides the fact that a central governmental system does

not control the market, every process has to be verified by miners through a process known as

mining, where unique mathematical equations have to be solved to add a new code of Bitcoin

to the blockchain. As a result, one code cannot be used again, and each is different from the

other, making this process transparent and completely secure. However, can Bitcoin be

completely secure and transparent if used as a legal currency in everyday transactions?

Why Should Bitcoin Be Used as Legal Currency in Kazakhstan?

The authorities of Kazakhstan have been doubtful about implementing Bitcoin as a

legal tender since the country started participating in the Bitcoin mining process. "It is clear

that Bitcoin can be used as money. ... The only limitation of Bitcoin is that it is limited to

those places that accept it as currency." (SEC v. Shavers 2013, p. 3). As can be seen from the

statement made above, Kazakhstan has missed many opportunities to grow as a country

because of the uncertainty it has towards adopting Bitcoin as a legal currency. Still, there is

still time, and there are numerous advantages to the government of legalising the usage of

Bitcoin as a legal currency. Kazakhstan has an economy primarily dependent on oil and gas

exports and on the condition of Russia. To begin with, embracing Bitcoin as a legal tender

would help the government diversify its economic system and its dependence on the things

mentioned before. For example, Kazakhstan's oil export depends on the pipeline passing

through Russia to reach the Black Sea and ship goods to specific destinations. The war

currently happening in Ukraine is a severe threat to Kazakhstan's "crude oil export, which

alone account for 14% of GDP and 57% of export" (O'Byrne, 2022). Additionally, accepting

Bitcoin as a legal tender will attract more foreign investments, which is a significant factor in

the economic growth and development of the country. Tonkonog stated that in 2022

"Kazakhstan managed to attract $28 billion of foreign direct investments (FDI)" (2023).
BITCOIN IN KAZAKHSTAN 5

Kazakhstan has gained substantial investments due to its geographical location as a bridge

connecting European and Asian markets. Nevertheless, some risks to adopting Bitcoin as a

legal tender exist, such as volatility and possible environmental impacts.

Why Should Bitcoin Not Be Used as a Legal Currency?

Bitcoin is known for its unstable and unpredictable price, which can raise risks for

running businesses and consumers using it in everyday transactions. For example, in 2021,

Bitcoin reached its highest value of $61,000, but now it is around $26,000 (de Best, 2023).

When it comes to adopting a new currency, the stability and functionality of the currency are

requirements, and Bitcoin tends to have price volatility. Moreover, almost 1,200 kWh is spent

on one Bitcoin transaction, which is roughly equal to 100,000 VISA transactions (Tuwiner,

2023). The Bitcoin mining process produces many gas emissions due to consuming much

energy, which makes this process not environmentally friendly and sustainable. Kazakhstan's

transition to Bitcoin could provoke concerns from an ecological and environmental

perspective, as the country produces 50% of the energy for Bitcoin mining by the coal-

burning process (Hinsdale, 2023).

Adopting Bitcoin as a legal currency is a crucial decision requiring much time to be

deliberated. Undoubtedly, Bitcoin and other cryptocurrencies hold much potential. Still, they

have their own threats and challenges associated with using them as legal tender in any

country, including Kazakhstan. Before making such a significant and risky move, the

authorities need to carefully contemplate possible benefits and risks and conduct thorough

research, to be aware of the possible outcomes of the final decision. Furthermore, for any

functioning currency to be widely accepted, it needs to offer stability, consumer protection

and regulatory clarity - areas where Bitcoin currently faces challenges.

Reference List

BTC Satoshi. (n.d.). What is Bitcoin? Retrieved from https://www.btcsatoshi.net/

De Best, R. (2023). Bitcoin price history Apr 2013 - Jul 19, 2023. Statista. Retrieved from

https://www.statista.com/statistics/326707/bitcoin-price-index/

Freeman Law. (n.d.). Kazakhstan and cryptocurrency. Retrieved from https://freemanlaw

.com/cryptocurrency/kazakhstan/

Guest, P. (2023). Bitcoin mining was booming in Kazakhstan. Then it was gone. MIT

Technology Review. Retrieved from

https://www.technologyreview.com/2023/01/12 /1066589/bitcoin-mining-boom-

kazakhstan/#:~:text=Kazakhstan%20was%20suddenly%20number%20two,grid%20to

%20capacity%20and%20beyond.

Hinsdale, J. (2022). Cryptocurrency’s dirty secret: energy consumption. State of the Planet.

Retrieved from https://news.climate.columbia.edu/2022/05/04/cryptocurrency-energy/

Investopedia. (2021). Legal tender: definition, economic functions, examples. Investopedia.

Retrieved from https://www.investopedia.com/terms/l/legal-tender.asp

Kunimoto, N., & Kakamu, K. (2022). Is Bitcoin really a currency? A viewpoint of a

stochastic volatility model. Applied Economics, 54(57), 6536-6550., DOI:10.1080/00

036846.2021.1951441

O’Byrne, D. (2022). Ukraine war threatens Kazakh oil exports. Eurasianet. Retrieved from

https://eurasianet.org/ukraine-war-threatens-kazakh-oil-exports
BITCOIN IN KAZAKHSTAN 7

Passinsky, A. (2021). Should Bitcoin be classified as money? Journal of Social Ontology,

6(2), 281–292. DOI: 10.1515/jso-2020-0022

Ramasastry, A. (2014). Is Bitcoin money? Lawmakers, regulators and judges don’t agree.

Verdict. Retrieved from https://verdict.justia.com/2014/09/09 /Bitcoin-money

SEC, v. Shavers. (2013). No. 4:13-cv-416 (E.D. Tex. Aug. 6, 2013). Retrieved from https:

//casetext.com/case/sec-exch-commn-v-shavers-1.

Tonkonog, O. (2023). Kazakhstan hits record in foreign direct investment. Kursiv Media

Kazakhstan. Retrieved from https://kz.kursiv.media/en/2023-04-03/kazakhstan-hits-

record-in-foreign-direct-investment/#:~:text=Last%20year%20Kazakhstan

%20managed%20to,%2423.8%20billion%20invested%20in%202021.

Tuwiner, J. (2023). 61 Bitcoin energy consumption statistics. Buy Bitcoin Worldwide.

Retrieved from https://buybitcoinworldwide.com/bitcoin-mining-statistics/