Kazakhstan

Kazakhstan central bank reviews digital tenge pilot successes, next steps

The digital tenge has been used for everything from free school lunches to tokenizing gold, and there’s more to come.

The digital tenge, Kazakhstan’s central bank digital currency (CBDC), has been declared a success following a month-long pilot project. A host of business, regulatory and technical improvements are lined up for it in 2024.

During its pilot run, the digital tenge was used to provide schoolchildren with free lunches in Almaty through the local Onay card, which was originally designed for use in the transit system. The Kazpost postal system operator served as the intermediary for those transactions.

Plastic cards were issued to members of focus groups by four local banks in conjunction with Visa and Mastercard. The cards allowed users to make purchases in person or online and to withdraw cash from ATMs. The participating merchant had the option of accepting digital tenge or converting them to “non-cash” tenge.

CZ must stay, Do Kwon to be extradited: Law Decoded

A Seattle district court ruled out CZ’s departure to the UAE, and the Montenegrin justice minister plans to grant the United States request for Do Kwon’s extradition.

Binance founder Changpeng “CZ” Zhao has been ordered to stay in the United States until his sentencing in February 2024, with a federal judge determining there’s too much of a flight risk if the former exchange CEO is allowed to return to the United Arab Emirates. Seattle district court Judge Richard Jones wrote in his order:

“The defendant has enormous wealth and property abroad, and no ties to the United States […] His family resides in the UAE and it appears that he has favored status in the UAE. Under these circumstances, the Court finds that the defendant has not established by clear and convincing evidence that he is not likely to flee if he returns to the UAE.”

Jones accepted Zhao’s guilty plea to one count of Bank Secrecy Act violations, which the Binance founder submitted over two weeks ago on Nov. 21 alongside a $4.3 billion settlement with U.S. agencies. Now, the ex-CEO of Binance faces up to 18 months in prison.

Kazakhstan blocked 980 unlicensed crypto exchanges in 2023

The Financial Monitoring Agency has also launched nine investigations into “illegal exchange operations” and money laundering.

In 2023, Kazakhstan’s Financial Monitoring Agency (FMA) blocked access to almost a thousand crypto exchanges serving the country’s citizens without proper registration.

According to a Dec. 7 press release published on the government’s website, the FMA denied access to 980 illegal platforms in 2023. It also launched nine investigations into “illegal exchange operations” and money laundering. This information was revealed by the chairman of the FMA, Ruslan Ostroumov, during the meeting of the Eurasian Group on Combating Money Laundering in China.

Kazakhstan to mandate 75% revenue sale from crypto mining for tax purposes

A new law signed by Kazakh President Kassym-Jomart Tokayev on Feb. 6 reinstated the nation’s stand against the unlawful mining operations and issuance of crypto assets.

Kazakhstan, one of the world’s biggest Bitcoin (BTC) mining hubs, announced plans to introduce new crypto regulations to reduce tax fraud and unlawful business operations.

A new law signed by Kazakh President Kassym-Jomart Tokayev on Feb. 6 reinstated the nation’s stand against the unlawful mining operations and issuance of crypto assets. Out of the two distinct pieces of legislation, the first requires the secured digital assets issuers to have the government’s permission.

Moreover, such issuers will be subject to monitoring by the existing law of the land — “On Combating the Legalization (Laundering) of Proceeds from Crime and the Financing of Terrorism.” The law will enter into force from April 1, 2023.

The second legislation targets unsecured digital assets, typically earned through crypto mining operations. To reduce the possibility of tax evasion, crypto miners in Kazakhstan will be forced to sell at least 75% of their revenue via registered crypto exchanges. This rule, which aims to collect “information on the income of digital miners and digital mining pools for tax purposes,” will be effective from Jan. 1, 2024, to Jan. 1, 2025.

All crypto mining licenses in Kazakhstan are issued for a limited period of three years and differ based on whether or not the miner owns the mining facilities.

Alongside introducing the above laws, Kazakhstan launched the pilot of its central bank digital currency (CBDC) project — the “digital tenge.”

Alongside the National Bank of Kazakhstan, #Binance presented a bilateral report on the “State of the Digital Assets Industry and DeFi in Central Asia”.

The joint report provides an overview of crypto adoption, general trends of DeFi, and the local digital assets industry.

— Binance (@binance) February 3, 2023

In a report jointly published by the National Bank of Kazakhstan (NBK) and crypto exchange Binance, NBK deputy governor Berik Sholpankupov wrote about the bank’s vision of a “collaboration between traditional finance and DeFi,” adding:

“In Kazakhstan, we also started a practical R&D project to explore how our CBDC – Digital Tenge, can bridge the world of crypto with traditional fiat payments infrastructure.”

Previously, in October 2022, Kazakhstan’s Astana Financial Services Authority granted Binance a permanent license to manage a digital asset platform and provide custody services.

Here’s how Kazakhstan aims to enhance its legacy crypto trading framework

The Astana Financial Services Authority, a Kazakh regulator, pointed out that the existing framework dates back to 2018 while proposing certain enhancements.

Kazakhstan, one of the world’s biggest Bitcoin (BTC) mining destinations, issued a consultation paper to gauge public interest in proposed amendments to improve the cryptocurrency trading framework.

The policy paper, released on Jan. 27, was laid down by the Astana Financial Services Authority (AFSA), a Kazakh regulator. The AFSA pointed out that the Astana International Financial Centre’s Digital Asset Trading Facility (DATF) regulatory framework dates back to 2018 and that the amendments seek to introduce certain enhancements.

AFSA’s analysis highlighted problems related to the ongoing supervision of crypto exchanges, revealing “contradictions, inefficient provisions and uncertain definitions within the regime.” It recommended introducing risk mitigation measures around several fronts, including governance, illicit activity, safekeeping of clients’ funds and settlement.

Regarding DATF framework restructuring, the paper recommended three options — keeping the existing framework form, developing a standalone DATF framework and treating crypto exchanges as a multilateral trading facility.

The AFSA believes that the policy recommendations will bring about several improvements, including risk mitigation related to crypto operations and the industry in general. In addition, the enhancements will address contradictions and unclear provisions of the existing framework. The final outcome, expected by AFSA, is to create a favorable regime for crypto exchanges while encouraging innovation.

According to the policy paper, the proposed measures will have a positive impact on crypto trading industry:

“This will collectively help to create more a clear, convenient, efficient, detailed and balanced AIFC DATF framework with high standards for consumer protection, without hindering development of crypto exchanges.”

On an end note, the paper revealed that the review of the DATF framework aligns with the “AFSA’s Strategy for 2022” initiative, where the development of “Digital Assets framework: Crypto exchanges, STO and DASP” is one of three key regulations development objectives.

On the other end of the spectrum, Kazakhstan’s central bank recommended launching an in-house central bank digital currency (CBDC) in 2023, with a phased expansion of functionality and introduction into commercial operation until the end of 2025.

In October 2022, Binance CEO Changpeng “CZ” Zhao revealed that Kazakhstan’s CBDC would be integrated with BNB Chain, a blockchain built by the crypto exchange.

Kazakhstan central bank recommends a phased CBDC rollout between 2023-25

Kazakhstan’s central bank recommended making the in-house CBDC available as early as 2023 with a phased expansion of functionality and introduction into commercial operation until the end of 2025.

Kazakhstan, the world’s third-largest Bitcoin (BTC) mining hub after the United States and China, found feasibility in launching its in-house central bank digital currency (CBDC), a digital tenge. The National Bank of Kazakhstan (NBK) revealed the finding following the completion of the second phase of testing.

In late October, Binance CEO Changpeng “CZ” Zhao announced that Kazakhstan’s CBDC would be integrated with BNB Chain, a blockchain built by the crypto exchange. The country’s primary motivation for conducting studies on CBDC was to test its potential to improve financial inclusion, promote competition and innovation in the payments industry and increase the nation’s global competitiveness.

The pilot research focused on offline payments and programmability recommended the inclusion of market participants and infrastructure players for different scenarios and proposed clarifying language to be used by the country’s regulators. The latest research paper cemented Kazakhstan’s intent to roll out the digital tenge. A rough translation of the report reads:

“Taking into account the need for technological improvements, infrastructure preparation, development of an operating model and a regulatory framework, it is recommended to ensure a phased implementation over three years.”

Kazakhstan’s central bank recommended making the in-house CBDC available as early as 2023 with a phased expansion of functionality and introduction into commercial operation until the end of 2025.

As many Russians crossed the border into the neighboring borders amid war-related uncertainties, Kazakhstan announced to legalize a mechanism for converting cryptocurrencies to cash.

“We are ready to go further. If this financial instrument shows its further relevance and security, it will certainly receive full legal recognition,” said President Kassym-Jomart Tokayev while speaking at the international forum Digital Bridge 2022.

As Cointelegraph reported, the neighboring country of Georgia has also been moving to introduce new crypto regulations to become a global crypto hub.

Kazakhstan to build central bank digital currency on BNB Chain

Officials in Kazakhstan continue their close relationship with Binance, as the National Bank plans to integrate its CBDC on the BNB Chain.

In an announcement on Twitter, Changpeng Zhao, the founder and CEO of Binance, said the network will be a major component of Kazakhstan’s latest Web3 endeavor.

The Binance founder tweeted that the National Bank of Kazakhstan (NBK) will integrate its central bank digital currency (CBDC), the digital tenge, on the BNB Chain, the underlying blockchain of the Binance network.

National Bank of Kazakhstan (NKB) will integrate their CBDC on @BNBchain. #BNB https://t.co/33WMKwAczm

— CZ Binance (@cz_binance) October 27, 2022

The NBK launched a CBDC pilot which included the participation of local merchants and consumers. Zhao said he looks forward to the bank further developing use cases to “bridge the gap between traditional banking and the crypto ecosystem.”

This development is one of many in the network’s effort to push crypto adoption, particularly in Kazakhstan. Back in August of this year, Binance was given its in-principle approval to operate as a digital asset service provider in Kazakhstan.

Less than a month later, on Oct. 6, the Kazakh Financial Services Authority granted Binance a permanent license to offer digital asset services and provide custody services. It was around this time that Binance also signed a memorandum of understanding with local authorities in an effort to help fight financial crime.

The Binance ecosystem, including its founder, has been vocal about its mission to push crypto adoption around the world. Recently it has engaged in crypto-related activities in Ukraine by hosting an NFT collection of a local museum at risk due to the conflict, along with opening two new offices in Brazil, one of Latin America’s major crypto hubs.

Kazakhstan’s CBDC pilot program is among the country’s recent activities in the crypto space.

On Sept. 28, President Kassym-Jomart Tokayev said Kazakhstan is inching closer to legalizing methods to convert cryptocurrencies to cash, along with full legal recognition. This statement came after the country introduced new crypto mining tax regulations over the summer.

Recent data on global crypto mining revealed that Kazakhstan is among the world’s top three destinations for Bitcoin (BTC) mining, after the United States and China.

Kazakhstan among top 3 Bitcoin mining destinations after US and China

The top three countries contributing to the Bitcoin hash rate continue to eat away the share of other players, such as Malaysia, Germany and Iran.

For over a year, the oil-rich Central Asian country of Kazakhstan has maintained its position as the third-biggest contributor to Bitcoin (BTC) mining after surpassing Russia back in February 2021.

As of January 2022, Kazakhstan contributed to 13.22% of the total Bitcoin hash rate, positioned right after the historical leaders the United States (37.84%) and China (21.11%), as shown below.

Along similar timelines, Cambridge Centre for Alternative Finance data estimated that Kazakhstan’s absolute hash rate contribution (monthly average) was 24.8 exahashes per second (Eh/s). Meanwhile, the US and China contributed 71 Eh/s and 39.6 Eh/s, respectively.

The International Energy Agency (IEA), which is co-funded by the European Union, highlighted Kazakhstan’s heavy reliance on non-renewable energy, such as oil (over 50%), coal (28%) and natural gas (17%) until 2020. The study revealed:

“Most coal is used for electricity and heat generation, while most oil is used by final consumers, particularly in road transport.”

However, the top three countries contributing to the Bitcoin hash rate continue to eat away the share of other players, such as Malaysia, Germany and Iran. Kazakhstan was among the first to welcome the displaced Chinese miners when the Chinese government imposed a blanket ban on Bitcoin and crypto mining and trading.

China resumed mining operations in September 2022, but the temporary mining ban stripped the country’s position as the biggest Bitcoin mining hub, placing the United States at the top ever since.

Local reports from Kazakhstan highlighted the country’s intent to legalize a mechanism for converting cryptocurrencies to fiat.

Speaking at the international forum Digital Bridge 2022, President Kassym-Jomart Tokayev shared his vision to make Kazakhstan a leader in the field of digital technology, cryptocurrency ecosystem and regulated mining.

“We are ready to go further. If this financial instrument shows its further relevance and security, it will certainly receive full legal recognition,” Tokayev stated.

Russian users are welcomed by crypto exchanges in Kazakhstan, but there’s a catch

Non-sanctioned foreigners are “more than welcome” at Intebix, but they need to set up a local bank card for crypto-to-fiat transactions, the CEO said.

Some cryptocurrency exchanges continue onboarding Russian nationals despite the latest Western sanctions against Russia, but not without certain restrictions.

In late September, Kazakhstan’s President Kassym-Jomart Tokayev witnessed the nation’s first regulated fiat-to-crypto purchase by a local commercial bank, the Eurasian Bank.

The transaction involved a local crypto exchange called Intebix, which allows retail clients to buy crypto with the local currency, the Kazakhstani tenge (KZT).

Intebix is not limited to Kazakhstani nationals, and the crypto exchange is willing to service foreigners coming to the country, according to Intebix co-founder and CEO Talgat Dossanov. He emphasized that Intebix’s crypto transactions are only accessible for card holders from one of Kazakhstan’s banks.

“Although foreign nationals are more than welcome at Intebix, they will need a local bank card to enjoy the crypto-to-fiat transactions,” Dossanov said in an interview with Cointelegraph.

The CEO noted that Intebix supports crypto transactions for verified clients only, while local banks carefully check each potential client on whether they are being sanctioned. Dossanov stated:

“Russian nationals who are not in sanction lists are welcome at Intebix, though they will need to pass a deep compliance check and open an account in a local bank to enjoy the crypto-to-fiat transactions.”

Kazakhstan became one of the prime destinations for Russian nationals seeking to avoid being called up to fight in Ukraine after Russian President Vladimir Putin announced a partial mobilization in mid-September. About 200,000 Russians fleeing mobilization have reportedly entered Kazakhstan as of Oct. 6.

Major banks in Kazakhstan, including Halyk Bank, reportedly suspended the use of Russia’s payment system Mir amid sanctions warnings by the United States Treasury Department.

Apart from boycotting Mir, some Kazakhstan banks also stopped accepting payments from local branches of major Russian banks like Sberbank, causing them to sell their local businesses.

Despite welcoming foreigners, the Intebix crypto exchange is still committed to complying with sanctions in its way.

“Since we are a regulated exchange we have to comply with the requirements set by our regulators. We constantly monitor the current situation to make sure we operate within the regulatory framework,” Dossanov said.

The CEO stressed that Intebix doesn’t restrict all Russian nationals on its platform because the firm is regulated by the Astana International Financial Centre (AIFC). On the other hand, Biteeu, the European branch of Intebix, no longer onboards Russians in line with sanctions from the European Union.

Dossanov co-founded Biteeu in 2019 with Kazakh businessman Shukhrat Ibragimov, the son of local oligarch Alijan Ibragimov. Biteeu co-founder Ibragimov has been a board member of the Eurasian bank since 2017. He also became a board manager at the local mining giant and raw materials supplier Eurasian Resources Group (ERG) after his father — a major ERG shareholder and co-founder — passed away in February 2021.

According to Dossanov, Ibragimov is the sole investor in Biteeu and Intebix. “The reason why Eurasian Bank is the first crypto-friendly bank in the region is mostly because of Ibragimov. He believes in crypto and sees new opportunities,” the exec stated.

Kazakhstan has emerged as one of the world’s biggest crypto-mining hubs. The country has been actively adopting policies to promote crypto adoption, officially authorizing crypto exchanges to open bank accounts in June 2022.

Binance, one of the world’s biggest crypto exchanges, received in-principle approval to operate as a digital trading facility and provide custody services in AIFC in August. On Oct. 19, Binance reportedly appointed Zhaslan Madiyev, a former deputy minister at the Ministry of Digital Development, as director of Binance Kazakhstan.

Kazakhstan grants Binance permanent license to offer digital asset services

The AIFC Financial Services Authority in Kazakhstan granted Binance a permanent license to manage a digital asset platform and provide custody services in the country.

After a build-up of multiple memorandums of understanding (MoU) and an initial “in-principle” approval to operate in Kazakhstan, Binance received a permanent license to operate in the country.

As of Oct. 6, Kazakhstan’s AIFC Financial Services Authority granted the permanent license to both manage a digital asset platform and provide custody services at the Astana International Financial Center.

This newly acquired permanent license gives Binance official status as a regulated platform in the country. Gleb Kostarev, Asia regional head at Binance, said this is another step for Binance being a “compliance-focused exchange.”

Kostarev highlighted Kazakhstan’s recent efforts and activities in the crypto space:

“We welcome Kazakhstan’s drive to become a leading player in the field of new digital technologies and the cryptocurrency ecosystem.”

Binance began laying the groundwork for operations in Kazakhstan earlier this year when it signed its first MoU on May 25, through which it pledged to help further crypto adoption and regulation in the country. It was followed by a second on Oct. 3 to help fight financial crime.

This development out of Kazakhstan follows multiple actions by authorities to increase the crypto-related opportunities in the country.

On Sept. 28, the president of Kazakhstan, Kassym-Jomart Tokayev, told a local news agency that if demand increases, the government is ready to authorize a way to convert crypto to fiat.

In June, the Ministry of Digital Development, Innovations and Aerospace Industry of Kazakhstan launched a program to allow crypto exchanges to open bank accounts and run legal operations in the Astana International Finance Center.

Kazakhstan has previously held a reputation as a good place for crypto mining due to local energy prices. Over the last year, the country has ramped up its power consumption reporting requirements for mining companies, along with new tax guidelines with a projected impact on the industry.