Vehicles drive on an unlit street during a power outage in Tehran this week as Iran suffers a series of power outages. (AP / Ebrahim Noroozi)
Tehran, Iran – The Iranian capital and major cities have fallen into darkness in recent weeks as power outages left millions of people without power for hours. Traffic lights died. Offices went dark. Online lessons stopped.
With the toxic smog covering the Tehran skies and the country warping under the pandemic and other escalating crises, there has been a lot of speculation on social media. Soon the fingers were pointing to an unlikely culprit: Bitcoin.
Within days, as frustration spread among residents, the government launched sweeping crackdown on Bitcoin processing centers, which require immense amounts of electricity to power their specialty computers and keep them cool – a drag on the Iranian power grid .
Authorities have closed 1,600 centers nationwide, including for the first time those legally authorized to operate. As the latest result of a series of conflicting government movements, the fallout has created confusion in the cryptocurrency industry – and suspicions that Bitcoin had become a useful scapegoat for the nation’s deeper-rooted problems.
Since the former President Donald Trump unilaterally withdrew from Tehran’s nuclear deal with the world powers in 2018 and imposed sanctions on Iran, the cryptocurrency has gained popularity in the Islamic Republic.
For Iran, anonymous online transactions in cryptocurrencies enable individuals and businesses to bypass banking sanctions that have crippled the economy. Bitcoin offers an alternative to cash printed by sovereign governments and central banks – and in the case of Iran and other countries under sanctions like Venezuela, a more stable place to park money than the local currency.
“Iranians understand the value of such a limitless network much better than others because we cannot access global payment networks,” said Ziya Sadr, a bitcoin expert in Tehran. “Bitcoin appears here.”
On the outskirts of Tehran and in the south and north-west of Iran, windowless warehouses are buzzing with heavy industrial machinery and rows of computers that run highly complex algorithms to verify transactions. The transactions known as blocks are then added to a public record called the blockchain.
“Miners” who add a new block to the blockchain charge fees in Bitcoin, a key benefit when the country’s currency collapses. The Iranian rial, trading at $ 32,000 at the time of the 2015 nuclear deal, has fallen to around $ 240,000 today.
Although bitcoin mining is putting a strain on the electricity grid, experts say that is not the real reason behind the power outages and dangerous air pollution in Iran. The Telecommunications Ministry estimates that Bitcoin processing uses less than 2% of all Iranian energy production.
“Bitcoin was an easy victim here,” said Kaveh Madani, former deputy head of Iran’s Ministry of Environment, adding that “decades of mismanagement” have left a growing gap between Iranian energy supply and demand.
Bitcoin “The energy footprint of mining is not negligible, but these problems don’t arise overnight,” he said. “You only need a trigger to get out of hand.”
Air pollution covers a mountain range in Tehran, Iran, December 23, 2020. The Iranian capital and its major cities have been plunged into darkness when millions of people have been without electricity for hours in the past few weeks. With the toxic smog covering the skies in Tehran and the country buckling under the strain of the pandemic and sanctions against the Iranian oil and gas industry, speculation about the spate of power outages gripped social media. Soon the fingers were pointing to an unlikely culprit: Bitcoin. (AP Photo / Ebrahim Noroozi)