Over the past two years, cryptocurrency mining in the Central Asian market has shown a positive trend. The legalization of their purchase and sale from October 2022 in Kazakhstan in this case is crucial.

In turn, in the most populous country in Central Asia, Uzbekistan, such operations have been completely banned since January 2023. At the same time, the National Bank of Kyrgyzstan urges to be careful with blockchain technology and mining, that is, the issue of cryptocurrencies, and the Kyrgyz parliament adopts the law "On Virtual Assets", which is designed to regulate the relevant digital transactions. This law has made life much easier for ordinary Kyrgyz miners.

Such a different approach of the Central Asian republics is associated with the relative uncertainty in the cryptocurrency market and their international status. On the one hand, they help to avoid blocking accounts by foreign banks, since the crypt can be stored with its own key, and no structure has access to it. On the other hand, states are not yet fully aware of the risks associated with storing cryptocurrencies.

Their chaotic use on the world market is also a moment that significantly limits the capabilities of miners in Central Asian countries. For example, while cryptocurrencies are allowed and regulated by law in Germany, Japan, Singapore, Estonia and South Africa, they are strictly prohibited in Morocco and Algeria. But we are interested in Central Asia and how ready it is to provide a legal framework for investing in mining and blockchain.

Exploring this topic, it is necessary to first determine the risks of using cryptocurrencies themselves, determining their advantages and disadvantages. So, a significant disadvantage of the crypt can be attributed to its legal uncertainty in the world. For example, the winner of the Alfred Nobel Prize in Economics, American scientist Robert Shiller, has repeatedly stated that bitcoin, the first cryptocurrency at that time, demonstrates similarities with an economic bubble. The largest banks in Asia, in particular, the Reserve Bank of India, announced the formation of a huge "bubble" around cryptocurrencies, in fact becoming an index of "money laundering". Many are also concerned about the decentralization of cryptocurrencies, that is, the impossibility of regulating their number and impact on the economy, because states have not yet been able to form effective mechanisms to curb the volatility of the digital currency.

The advantages of such a means of payment include the simplification of contractual procedures using smart contracts, that is, contracts written in digital language. At the same time, the probability of an unreliable transaction is low — the whole process is fully automated and excludes intermediaries — people or organizations do not participate in it. Also, the greater attractiveness of cryptocurrencies is provided by protection from blocking of cryptocurrency accounts. But all the advantages of the crypt come to naught when it comes to the practice of using them in trade.

As you know, the largest foreign trade partners of Central Asia, such as China and Russia, did not particularly honor the cryptocurrency. As a result, Beijing officially banned its use at all levels of the economy back in 2019, which led to the fact that almost all Chinese players in this sphere trade crypto through foreign exchanges.

As for Russia, it is not so categorical about blockchain. At the moment, this currency can only be used as a means of investment, but selling and buying in the country is prohibited. And if the decision on the ban is not disputed in China, then in Russia, behind-the-scenes conversations about the legalization of operations with crypto have acquired a nationwide character: the Russian Ministry of Industry and Trade is already talking about such a need and this issue has been raised in the Duma. As of December 2022, Russians had more than $200 billion worth of cryptocurrencies with them.

As for South Asia, everything is much simpler here: attempts have been made in India to introduce its own state cryptocurrency, and about 300 million Indians regularly conduct transactions involving digital money — unthinkable volumes for Central Asian countries. Neighboring Iran generally uses blockchain not only for domestic transactions, but also for export-import: last year, the country used them for the first time to pay for imports. And despite the fact that the foreign trade turnover with the countries of South Asia is only 5% of the total trade of the republics, the two regions have significant prospects for the growth of mutual economic ties.

A more simplified trade of countries using cryptocurrencies can be established in the EU and the USA, where there is a more transparent system of payments of digital money. In Turkey, there are strict restrictions on this.

So, we find out that trade in Central Asia through crypto is possible, but at the moment, while the main foreign trade players have banned its use in their economy, it is not necessary to expect that conditional Kazakhstan will pay off Chinese investors in cryptocurrency.

As for mining itself, that is, the production of cryptocurrencies, there are also problems here. Firstly, the crypt, which requires a large amount of energy for its manufacture, cannot be generated in a region where there are obvious problems with energy supply, especially if we talk about Uzbekistan, Kyrgyzstan and Tajikistan. Kazakhstan and Turkmenistan remain fully energy-supplied. The latter, in turn, is the guarantor of the energy security of the region, thanks to a well-branched energy infrastructure, as well as large reserves of hydrocarbons from which this energy is generated.

It is not necessary to say that one day cryptocurrencies will be involved in the legal field of Central Asia. This is facilitated by both the energy consumption of production and the inability of cryptocurrencies to ensure stable export-import operations between the region and key economic partners of the Central Asian countries.

Arslan MAMEDOV

Photo by Aleksi Räisä