Uzbekistan launches first tax-free crypto mining zone in Karakalpakstan

On July 8, Uzbekistan's Ministry of Justice approved a regulation governing the registration and operations of residents of the Besqala Mining Valley. Unlike traditional mining operations, prospectors in this zone will not be mining 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 from April 17 to establish the first-of-its-kind special crypto mining zone in the Republic of Karakalpakstan, covering its entire territory.

Tax Incentives

Within Besqala, income from crypto mining is exempt from taxes until 2035. This creates an incentivizing environment for large mining operators, though only locally registered legal entities can become Besqala residents.

Uzbekistan's Evolving Crypto Policy

Uzbekistan's position on cryptocurrency falls between full prohibition and unrestricted permission. The state permits crypto activities but requires them to be traceable and financially controllable.

Key Developments

• 2018: Tashkent established a highly controlled approach toward cryptocurrencies. Various crypto activities, including mining, were recognized as economic and technological opportunities, but within limits. From October 2018, crypto activities required state licensing through the National Agency for Project Management under the president. 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: The NAPP became the principal regulator responsible for licensing, registering, and even investigating foreign entities. Crypto mining became a corporate practice — only legal entities can mine — and was subject to Uzbekistan's energy policy, requiring mining to use electricity generated by solar stations.

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

• 2024 Criminal Code Amendments: Violations in the crypto sphere, including mining activities, now carry criminal liability rather than administrative punishments such as equipment confiscation and fines. Covert (yashirin) mining can be criminal from its first occurrence. The law also legally defined "crypto asset" and "mining" and entered these terms into the country's Criminal Code.

Energy and Environmental Considerations

The introduction of Besqala Mining Valley provides more opportunities for state supervision of crypto mining practices, particularly regarding energy consumption. In 2024 alone, 91 crypto mining farms were found to be engaging in electricity theft.

Electricity Use in Besqala

• Miners may use many forms of renewable energy and hydrogen-generated electricity
• In other parts of Uzbekistan, only solar electricity is allowed for mining
• Residents may connect to the national grid but must pay twice as much as regular users
• Concentrating mining operators in one geographic location makes industry activities, including electricity use, more visible

Environmental Challenges

The Besqala Mining Valley is not a separate industrial park but covers all of Karakalpakstan, which constitutes almost 40 percent of Uzbekistan's total territory. This geographic scope may make environmental monitoring difficult. Several issues remain unaddressed:

• Electronic waste
• Water consumption
• Cooling
• Noise
• Heat discharge (except for heat reused for greenhouses — though this is not mandatory)
• Equipment disposal
• Environmental-impact assessments

Electricity Supply Concerns

Crypto miners paying twice as much for grid electricity does not guarantee that local households will avoid electricity shortages, particularly in mid-summer when air conditioning demand peaks.

Between July 13 and 19, the People's Receptions of the President of the Republic of Uzbekistan received 1,012 applications regarding power outages and 356 concerning repair of electrical facilities. In the first half of 2026, electricity losses reportedly amounted to 17.2 percent (equal 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 could potentially contribute to the economy of Karakalpakstan, a region that is geographically isolated and historically in need of additional measures to improve living conditions due to environmental challenges stemming from the drying Aral Sea. In August 2025, a presidential decree was issued to accelerate the region's socio-economic development.