Crossroads Asia | Economy | Central Asia

Uzbekistan Launches Its First Tax-Free Crypto Mining Zone

Uzbekistan wants to reap the economic benefits of cryptocurrency, while keeping the industry regulated.

On July 8, Uzbekistan’s Ministry of Justice approved a regulation governing registration and operations of the residents of the Besqala Mining Valley. Prospectors here won’t be mining for gold, uranium, or copper – they are mining cryptocurrency.

Developed by the National Agency for Prospective Projects (NAPP), the new regulation is in accordance with the presidential resolution from April 17 to establish the first-of-its-kind special crypto mining zone in the Republic of Karakalpakstan, covering its whole territory. Within Besqala, incomes from crypto mining are exempted from taxes until 2035. That creates an incentivizing environment for large mining operators, although it’s notable that only locally registered legal entities can become Besqala residents.

Uzbekistan’s position on cryptocurrency is somewhere in between full prohibition and unrestricted permission. The state allows crypto activities to exist, but they must be traceable and financially controllable. Initially, in 2018, Tashkent established a highly controlled approach toward cryptocurrencies. Various crypto activities, including mining, were recognized and regarded as an economic and technological opportunity, but within limits. From October 2018, crypto activities required state licensing, to be handled by the National Agency for Project Management under the president. Tashkent also granted certain perks for crypto activities, such as exemption from taxes and ordinary currency-control rules. Mining was not yet treated as an electricity or environmental threat. 

The 2022 reforms in the crypto field positioned the NAPP as a principal regulator responsible for licensing, registering, and even investigating foreign entities. Crypto mining itself became a corporate practice – only legal entities can mine – and was subject to Uzbekistan’s energy policy – mining must use electricity generated by solar stations. From 2023, crypto mining practices required a permit from the NAPP, not a license. The permits are issued for five years and are listed publicly by the NAPP. 

The 2023 amendments to Uzbekistan’s Criminal Code, which entered into force from January 2024, had implications for crypto regulations. Initially, violations in the crypto sphere, including in mining activities, might result in administrative punishments such as confiscation of equipment and a fine. Now, such violations lead to criminal liability. Covert (yashirin) mining can be criminal from its first occurrence. The law also legally defined “crypto asset” and “mining” and entered them into the country’s Criminal Code.

The introduction of Besqala Mining Valley represents more opportunities for the state to supervise crypto mining practices. This is important especially in relation to energy consumption, since mining requires a lot of it. In 2024 alone, 91 crypto mining farms were found to be engaging in electricity theft. In Besqala, crypto miners now have more........

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