Risk Analysis of Cryptocurrency in Kazakhstan

Abstract

In this study, we investigated the risks of the cryptocurrency industry. The focus of our research work is to identify the risks and rewards the Republic of Kazakhstan could gain from the development of this sphere. Risks in cryptocurrency can be divided into two main groups: risks from mining and trading. Due to time constraints and the vastness of the study itself, we decided to focus on looking only at the risks of cryptocurrency mining on the example of the Republic of Kazakhstan. In researching the cryptocurrency mining industry in Kazakhstan, we have identified three main risks related to this activity:  Risks associated with activities of “grey” cryptocurrency miners,  Risk of energy resource depletion,  Risk of environmental pollution. The terms “grey miners” and “white miners” are often used in the context of cryptocurrency mining and describe two different types of participants in this activity. “White” miners are law abiding and honest market participants who follow the rules and regulations relating to cryptocurrency mining. They usually act in accordance with the accepted regulatory framework and operate within the law and the rules set out in the legislation of the Republic of Kazakhstan. On the other hand, “grey” miners are people or organisations that mine cryptocurrency without fully complying with the rules and regulations that apply to mining. They may break laws, steal electricity or misuse resources to mine cryptocurrency without incurring any losses. The peculiarity of grey miners is that they are very difficult to find and to prosecute. The high activity of “grey” miners leads to:  depletion of energy resources and environmental pollution.  the risk of increased fraudulent, criminal, and corrupt activities  the risk of spreading system and technical viruses. However, insensibly managed activities “white” miners also can lead to undesirable outcomes. In this diploma work we consider risks associated with mining activities in Kazakhstan. On the other hand, sensible management of mining activities can contribute to the economy of country. So, we also consider benefits from mining industry in Kazakhstan. Certainly, sustainable development of mining industry is impossible without adequate regulatory framework. Therefore, in this diploma work we assess regulation of mining activities in Kazakhstan. Apart from government regulation, overall awareness of people and their financial literacy is important. So, we also assess the level of awareness of people in Kazakhstan in about cryptocurrencies and their mining.