New regulations in the Central Asian country seek to limit mining and maximize government control over the sector.
- New mining restrictions are coming to Uzbekistan.
- Only registered and licensed legal entities will be able to carry out mining activities.
- Uzbekistan has very low energy costs, but nevertheless its share of global hashrate is still very low.
TASHKENT – The Republic of Uzbekistan has introduced comprehensive mining legislation in an effort to better control mining activities in the country. These changes were detailed in an official decree from the National Agency for Prospective Projects of Uzbekistan (NAPP).
The new set of regulations imposes the following restrictions on mining activities:
- Only legal entities with the appropriate license are permitted to engage in mining activities. Individuals and unlicensed entities are thus prohibited from doing so.
- Mining companies should solely rely on solar energy for their activities. It is possible to request permission to also use energy from the grid, but the rate charged will be twice the standard one, and additional costs may apply during peak demand hours.
- Miners must register the physical address where the mining operations take place and cannot install machinery anywhere else. “Hidden mining” is not allowed.
- Bitcoin and other cryptocurrencies obtained from mining can only be sold to licensed exchanges and brokers in the country.
- Mining of “anonymous” cryptocurrencies is not allowed.
The document further emphasizes that unauthorized and hidden operations will not be tolerated.
Why these new restrictions?
The government has not explicitly stated the reasons behind these new regulations, but it isn’t hard to guess. Uzbekistan is a country rich in oil and gas and has a very low energy cost for both businesses and households, respectively $0.049 and $0.024 per kWh, making it an ideal place for mining activities. However, these low costs are also due to government subsidies, which burden the state’s treasury. If too many people start independent Bitcoin mining operations, they could monetize the subsidy, making it unsustainable in the long run. That’s why the government is trying to mitigate the issue by having full oversight and control over all mining activities within the country.
Clearly, the alternative would be to liberalize the energy market and allow anyone to mine without restrictions competitively, which could also help the country modernize its energy infrastructure. However, the government of the former Soviet republic is not yet ready to take such a step.
Consequences
The amount of Bitcoin hashrate in Uzbekistan is currently negligible, being orders of magnitude lower than the neighboring Kazakhstan, which has managed to leverage its energy resources to become a global Bitcoin mining powerhouse, ranking third in hashrate after the United States and China. For this reason, the impact of these new regulations on the Bitcoin network will be absolutely null, and even locally, it is unclear how the oversight and enforcement of the new regulations to stop independent mining will be conducted. As in other scenarios, it’s reasonable to think that mining activities not too large to be noticeable will continue to operate away from the regulator’s eyes.
