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The world's second-largest mining hub, Kazakhstan, has shut down due to deadly protests.

• The world's second-largest bitcoin mining country lost internet connection, taking up to 15% of the network offline.
• Kazakhstan has coal mines that provide a cheap and plentiful supply of energy, which is a big incentive for miners who compete in a low-margin industry where energy is generally their sole variable cost.
• On Thursday, Bitcoin went below $43,000 for the first time since September, losing almost 8% at one point.

As the Central Asian nation of Kazakhstan descended into disarray this week, the world's second-largest bitcoin mining hub experienced an internet outage, dealing yet another blow to miners looking for a permanent and stable home.

China expelled all of its cryptocurrency miners less than a year ago, prompting many to seek sanctuary in Kazakhstan. However, months after these crypto migrants arrived, protests over rising fuel costs erupted into the country's worst upheaval in decades, trapping crypto miners in the middle.

President Kassym-Jomart Tokayev of Kazakhstan has ordered the nation's telecom operator to shut down internet connectivity after firing his government and requested Russian paratroopers' assistance to stop the deadly unrest. According to Kevin Zhang of digital currency business Foundry, which helped move over $400 million in mining equipment into North America, the closure knocked off about 15% of the world's bitcoin miners.

"No internet, no mining," Kazakh miner Didar Bekbau explained.

In trade on Thursday, Bitcoin fell below $43,000 for the first price since September, plunging over 8% at one point. The price increase came after the Federal Reserve's December meeting minutes were released, which were hawkish. Nic Carter of Castle Island Ventures believes that increasing the pace of mining will have a minor impact on supply, and that the declining price of bitcoin is mainly a product of the Fed and "overall risk-off behaviour."

Although Internet connection was briefly restored across the country, data from the NetBlocks Internet Observatory shows that connectivity levels across the country have remained flat at just 5% of normal levels.

In a tweet, NetBlocks said, "It's currently Friday morning in Kazakhstan, where the internet has been shut down for 36 hours, putting public safety at danger and cutting friends and family off."

The entire show reveals two important facts concerning the current condition of bitcoin mining. For one thing, the bitcoin network is so resilient that it doesn't miss a beat even when a large number of miners are taken offline abruptly. Second, the United States may soon see a surge of crypto miners seeking to avoid future outages.

The question now is whether the United States, which surpassed China as the world's largest bitcoin mining hub in 2021, has enough space to accommodate any further miners.

"What's troubling is that past congestion and bottlenecks around hosting capacity (ready-to-plug-in space) will be squeezed even tighter," Zhang explained.

"There's a lot of pressure and demand for hosting capacity right now," he said.

Bitcoin mining in Kazakhstan

Kazakhstan appeared like an obvious option when Beijing booted out all of its bitcoin miners in May 2021. In addition to being directly next door, the country is a major energy producer.

Mining is the time-consuming and energy-intensive process of creating new currencies and keeping track of all transactions. Kazakhstan has coal mines that provide a cheap and plentiful supply of energy, which is a big incentive for miners who compete in a low-margin industry where energy is generally their sole variable cost.

It also helps that the Kazakh government has a more relaxed attitude toward construction, which is beneficial to miners who need to establish physical infrastructure in a short amount of time.

Bekbau is the founder of Xive, a company that provides hosting and sells specialised mining equipment to foreign miners. He's had a lot of calls from Chinese miners asking for a safe area to plug in their equipment in the last few months.

Kazakhstan is second only to the United States in terms of global bitcoin mining market share, accounting for 18.1 percent of all crypto mining, according to the Cambridge Centre for Alternative Finance.

The government, on the other hand, has been less than enthusiastic about the expanding crypto mining industry.

Kazakh politicians have been enacting new restrictions to discourage mining for months, including a bill that will levy additional taxes on crypto miners beginning in 2022. Experts predict that the move will drastically alter the incentives for people wishing to invest in Kazakhstan.

“The internet outage comes at the heels of efforts to impose a de facto moratorium on new mining in the country, miners would have been well aware of the political risk," Carter added.

"These bans only serve to highlight why miners are increasingly choosing to locate themselves in politically stable jurisdictions," Carter concluded.

Several mining specialists also told CNBC that Kazakhstan was always meant to be a stopover on the way west.

Large miners with older equipment were headed to Kazakhstan in the short term, according to Alex Brammer of Luxor Mining, a bitcoin pool created for advanced miners.

"However, as older-generation equipment reach the end of their useful lives, those corporations will most likely deploy new machines in more stable, energy-efficient, and renewable jurisdictions," Brammer added.

The United States has quickly become a crypto mining destination, in part because it boasts some of the world's cheapest energy sources, many of which are renewable.

If bitcoin miners do make their way west, it might be a good sign for the bigger debate about the cryptocurrency's carbon footprint.

Carter points out that Kazakh energy is carbon-intensive, so a protracted outage in the Central Asian country, like the Chinese ban, would likely result in greater decarbonization of bitcoin mining.

However, not everyone believes Kazakhstan is on the verge of a crypto mining exodus.

Alan Dorjiyev is the head of Kazakhstan's National Association of Blockchain and Data Centers Industry, which is primarily made up of mining businesses. After speaking with owners of mining farms across the country, Dorjiyev tells CNBC that most data centres are safe since they are located in areas where there are no protests.

Bekbau also remains optimistic, tweeting that he hopes by next week, “everything will be okay.”

Whether miners leave Central Asia or not, industry analysts say the most important conclusion from this event is that bitcoin mining has once again passed another stress test with flying colours.

′′As we saw with China, when a country shows it's unstable for mining bitcoin, miners in that country will shift elsewhere," said Brandon Arvanaghi, a bitcoin mining engineer who now heads Meow, a firm that allows corporate treasuries to participate in crypto markets.

"Over time, this is how the bitcoin network becomes more resilient." Miners relocate to the most favourable jurisdictions, resulting in less and fewer disruptions."