Introduction
Uzbekistan has established a regulated cryptocurrency mining zone in the region of Karakalpakstan, following a presidential decree that was enacted on April 17 and became effective on April 20. This initiative, named the “Besqala Mining Valley,” is designed to facilitate a controlled environment where selected mining companies can operate legally, trade their mined digital currencies on international exchanges, and retain their sale revenues within the Uzbek banking framework.
Regulations and Oversight
The new regulations allow registered entities to apply for residency status through a newly formed department under the Republic’s Council of Ministers. Once approved, they can engage in cryptocurrency mining with oversight from the government. This setup not only permits mining companies to sell their digital assets on both local and foreign exchanges but also encourages them to enter into direct contracts and engage in swaps with other cryptocurrencies, thus expanding their operational possibilities.
Financial Provisions
A notable stipulation of the decree is that all proceeds from cryptocurrency transactions must be deposited into Uzbek bank accounts, effectively keeping the capital within the domestic financial system, even when the sales occur internationally. To make the zone appealing to potential investors, businesses operating in this area will benefit from tax exemptions until January 1, 2035; however, they are required to pay a monthly fee of 1% of their mining revenue to the governing body of the mining zone. Officials are also mandated to present tax code revisions within a two-month timeframe to ensure compliance with the newly established mining framework.
Shift in Mining Policies
The decision to create this mining zone marks a shift from Uzbekistan’s previous cryptocurrency mining policies, which, as of 2023, only allowed miners to utilize solar energy for their operations. The current decree, however, permits a variety of power sources, such as renewable energy, hydrogen, and grid electricity—albeit with higher tariffs for those using grid power alone.
Economic Growth Strategy
This development is part of a broader strategy to foster economic growth in Karakalpakstan, a region known for its significant poverty and slow industrial development. In line with this, the Uzbek government has also proposed the creation of a separate, tax-free zone for artificial intelligence and data center initiatives within the region, aimed at attracting substantial foreign investments. Reports indicate that investments exceeding $100 million could benefit from comprehensive tax and duty waivers up until 2040, with the government aspiring to secure over $1 billion in foreign capital by 2030 as part of this endeavor.
