Starting this week, Bitcoin (BTC) mining companies operating on Uzbek soil, whether domestic or foreign, will be able to benefit from an exemption from energy taxes if they agree to use solar energy. This decision is in line with past statements by the government, which has been seeking to move towards green energy for several years.
Environmental and financial benefits for Uzbekistan
Following a presidential decree earlier this week, cryptocurrency mining companies operating in Uzbekistan, whether domestic or foreign, will be exempt from tax if they choose to operate on solar energy.
This is therefore an incentive for mining companies to use clean energy, as otherwise they are forced to pay twice the price of electricity. Moreover, these prices are further increased during regional energy peaks.
Uzbekistan, a country rich in raw materials, is self-sufficient in terms of energy, largely due to its natural gas and hydroelectricity production.
Although Uzbeks consume almost half as much energy per capita as the rest of the world, the government has been developing green energy for several years, notably through solar panels.
Indeed, the region benefits from a high rate of sunshine throughout the year, so this is an interesting opportunity for the Central Asian country.
So, although cryptocurrency mining is already legal in Uzbekistan, companies wishing to benefit from this tax exemption will have to register with a specially created body.
The issues of cryptocurrency mining
Proof-of-Work (PoW) is the method used by the Bitcoin (BTC) and Ethereum (ETH) networks to ensure their operation. However, it is a method that is often criticised for being particularly energy-intensive.
According to the Cambridge Bitcoin Electricity Consumption Index, a widely used tool for assessing the energy consumption of the Bitcoin network, we can see that, for example, it consumes more energy than the energy used for gold mining.
One example that speaks for itself is the energy consumption per country. Indeed, if the energy used to run the Bitcoin proof-of-work method were to be a country, it would rank 24th out of all countries in the world, which is absolutely huge.
However, as this issue becomes more and more talked about, solutions are starting to emerge on their own. For example, by using clean energy, as Uzbekistan is proposing here, or by using geothermal energy, as Nayib Bukele, the president of El Salvador, has proposed.
In the case of the Ethereum blockchain, it is planned to solve the problem directly at the source: the network must evolve towards proof-of-stake consensus, a method favoured by blockchains since it combines both speed and very low energy consumption.
Finally, following the total ban on mining in China last year, many miners had to cross borders to neighbouring countries, notably Uzbekistan and its neighbour Kazakhstan, where energy was more affordable. But now, even these countries are finding themselves forced to adapt to the demand for energy.
