On April 1, 2023, Law No. 193-VII on Digital Assets in the Republic of Kazakhstan entered into force, establishing legal grounds for the issuance, placement, and circulation of digital assets, and regulating the activities of cryptominers in the country.
Following its adoption by the Kazakh Parliament, the new legislation was signed into law by President Kassym-Jomart Tokayev on February 6, 2023.
The law introduces obligatory licensing for cryptomining, mandatory accreditation of digital mining pools, a procedure of registration in the special state registry for individual entrepreneurs and legal entities involved in mining secured digital assets, and rules for separate registration of hardware and software systems for digital mining. (Law No. 193-VII, arts. 6, 7, 9 &10.)
Provisions of the New Law
The newly adopted law defines a digital asset as “property created in electronic digital form with an assigned digital code, including by using cryptography and computing, [that is] registered and secured by the immutability of information on the basis of distributed data platform technology.” (Art. 1, para. 4.) Article 1 of the law distinguishes between “secured digital assets” and “unsecured digital assets.” The law defines the term “secured digital asset” as a “digital asset registered through a digital platform for the storage and exchange of secured digital assets, which certifies the rights to material, intellectual services and assets, with the exception of money and securities.” The term “unsecured digital asset” refers to an asset “received in the information system as a reward for participation in maintaining consensus in the blockchain, which can be traded digitally on the digital asset exchange.” (Art. 1, paras. 1 & 3.)
Regulatory Bodies and Licensing Rules
Article 4 of the law introduces the licensing rules for digital assets, cryptomining, and crypto exchanges, and prescribes the mechanisms of control by the state bodies that oversee this sector. The law mandates authorized state bodies to maintain a state register of persons carrying out activities for the issuance of secured digital assets, maintain a register of hardware and software complexes for digital mining, and issue permits for the issuance and circulation of secured digital assets. (Art. 4, paras. 10, 11, 14.)
Individuals and legal entities are required to obtain a permit from the competent authority to be eligible to issue secured digital assets, and persons issuing and circulating secured digital assets are subject to financial monitoring in accordance with the Law on Counteracting the Legalization (Laundering) of Proceeds from Crime and the Financing of Terrorism. (Art. 6, paras. 2–3.) State inspectors are required to monitor and control digital asset activities following the procedure prescribed by the Entrepreneurial Code of the Republic of Kazakhstan. (Art. 12.)
According to the law, digital mining is permitted only by special license. (Art. 8, para. 2.)
These mining licenses are to be issued for a period of three years to two types of applicants: the legal entities that own mining infrastructure, such as data centers, which meet certain standards in terms of equipment, location, and security; and those who own mining hardware but rent a space in crypto farms. (Art. 9.)
The law introduces a separate set of requirements for digital mining pools. To obtain a special registration, digital mining pools must meet three criteria: the physical presence of digital mining hardware and software in the territory of Kazakhstan; availability of a test report containing a positive test result for compliance with information security requirements; and compliance with other requirements defined by the rules for accreditation of digital mining pools. (Art. 10.)
Digital Assets Exchange
The law requires that any transaction involving digital assets obtained through digital mining in the territory of Kazakhstan be conducted only through digital assets exchanges licensed by the Astana International Financial Centre (AIFC.)
The law further stipulates that during the period from January 1, 2024, until January 1, 2025, at least 50% of the digital assets produced by digital miners in the territory of Kazakhstan must be sold. Beginning January 1, 2025, the amount of digital assets that must be sold increases to 75%. (Art. 8, para. 4; art. 14.)
Under this law, digital asset exchanges must be licensed by the AIFC on the basis of the Constitutional Law of the Republic of Kazakhstan on the Astana International Financial Centre, which provides a legal framework for the functioning of the AIFC. (Constitutional Law of the Republic of Kazakhstan on the Astana International Financial Centre, adopted Dec. 7, 2015; Law No. 193-VII, art.11, para 1.)
The issuance and circulation of unsecured digital assets, as well as the activities of digital asset exchanges for unsecured digital assets, are prohibited in the territory of Kazakhstan, except in cases when such activities take place in the area covered by the special legal regime of the Astana International Financial Centre. (Constitutional Law on the Astana International Financial Centre art. 1, paras. 2–3; art. 2, para. 4; Law No. 193-VII, art. 11, para 5.)
Supplemental Legislation on Digital Assets
On February 6, 2023, President Tokayev also signed supplemental legislation on digital assets: Law No. 194-VII, on Amendments and Additions to Certain Legislative Acts of the Republic of Kazakhstan on Digital Assets and Informatization. This law introduces regulations on the supply and use of electricity by digital miners.
The law establishes energy consumption quotas for digital miners. (Law No. 194-VII, art. 8.) Under this law, digital miners are allowed to purchase electricity only from the national grid, and only if the grid contains surplus electricity. However, these limitations will not affect miners that use renewable energy or imported power, or who produce their own electricity, off the grid. (Art. 9.)
Law No. 194-VII will enter into force on July 1, 2023.
Iana Fremer, Law Library of Congress
May 1, 2023
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