Uzbekistan launches first tax-free crypto mining zone in Karakalpakstan

July 8 — Uzbekistan's Ministry of Justice has approved a regulation governing the registration and operations of residents in the Besqala Mining Valley. Unlike traditional mining operations in the region, prospectors here will not be extracting gold, uranium, or copper — they will be mining cryptocurrency.

Regulatory Framework

The new regulation, developed by the National Agency for Prospective Projects (NAPP), aligns with a presidential resolution issued on April 17 to establish the first-of-its-kind special crypto mining zone in the Republic of Karakalpakstan, covering its entire territory.

Key provisions include:

• Tax exemption: Income from crypto mining within Besqala is exempted from taxes until 2035
• Eligibility: Only locally registered legal entities may become Besqala residents
• Purpose: To create an incentivizing environment for large mining operators

Uzbekistan's Evolving Crypto Policy

Uzbekistan maintains a middle-ground position on cryptocurrency — between full prohibition and unrestricted permission. The state permits crypto activities but requires them to be traceable and financially controllable.

Timeline of Regulatory Development

2018: Tashkent established a highly controlled approach, recognizing crypto activities (including mining) as an economic and technological opportunity, but within limits. From October 2018, crypto activities required state licensing through the National Agency for Project Management. Certain perks were granted, including tax exemptions and relief from ordinary currency-control rules. Mining was not yet treated as an electricity or environmental threat.

2022: Reforms positioned the NAPP as the principal regulator, responsible for licensing, registering, and investigating foreign entities. Crypto mining became a corporate practice — only legal entities may mine — and was subject to energy policy requiring the use of electricity generated by solar stations.

2023: Crypto mining practices required a permit (not a license) from the NAPP, issued for five years and listed publicly.

2024: Amendments to Uzbekistan's Criminal Code (effective January 2024) introduced criminal liability for violations in the crypto sphere, including mining activities. Previously, such violations resulted in administrative punishments such as equipment confiscation and fines. Covert (yashirin) mining can be criminalized from its first occurrence. The law also legally defined "crypto asset" and "mining" and incorporated these terms into the Criminal Code.

Energy and Environmental Considerations

The Besqala Mining Valley provides greater opportunities for state supervision of crypto mining, particularly regarding energy consumption.

Electricity Usage

• In 2024 alone, 91 crypto mining farms were found to be engaged in electricity theft
• Besqala miners have more liberalized electricity options: they may use multiple forms of renewable energy and hydrogen-generated electricity
• In other parts of Uzbekistan, only solar electricity is permitted for mining
• Besqala residents may connect to the national grid but must pay twice the rate of regular users
• Concentrating mining operators in one geographic location increases visibility of industry activities, including electricity use

Environmental Concerns

The Besqala Mining Valley is not a separate industrial park but covers all of Karakalpakstan — nearly 40 percent of Uzbekistan's total territory. This geographic scope may complicate environmental monitoring.

Unaddressed issues include:

• Electronic waste
• Water consumption
• Cooling requirements
• Noise pollution
• Heat discharge (reuse for greenhouses is possible but not mandatory)
• Equipment disposal
• Environmental-impact assessments

Additionally, the higher electricity rates for crypto miners do not guarantee that local households will avoid power shortages, particularly during peak summer demand for air conditioning.

Recent Power Outages

Between July 13 and 19, the People's Receptions of the President received:

• 1,012 applications regarding power outages
• 356 applications regarding repair of electrical facilities

In the first half of 2026, electricity losses reportedly reached 17.2 percent (equivalent to 4.8 billion kilowatt-hours). Current crypto mining regulations do not establish maximum grid capacity for a single mining operator.

Economic Potential for Karakalpakstan

The Besqala Mining Valley may contribute to the economy of Karakalpakstan, a region that is geographically isolated and historically in need of additional measures to improve living conditions. The region faces environmental challenges stemming from the drying Aral Sea. In August 2025, a presidential decree was issued to accelerate the socio-economic development of the area.