This time around, however, government officials say that cryptocurrency farms’ bitcoin mining – the energy-intensive business of using large computer collections to verify digital coin transactions – is partly to blame.
Iranian state-owned electricity company Tanavir announced on Wednesday that it has closed a large Sino-Iranian cyber currency center in southeastern Kerman province because of its high energy consumption. The company was reportedly licensed to operate under a process the government had put in place to regulate the industry.
Mostafa Rajabi Mashhadi, an electricity industry spokesman for the Iranian Ministry of Energy, told state-run IRNA news agency that Iranian officials not only singled out illegal numbers from the field of power grids, but also exposed illegal cryptocurrency miners as a burden on the power grid. On Wednesday, Ali Vaezi, a spokesman for Iranian President Hassan Rouhani, said the government would investigate cases of unlicensed cryptocurrency farms.
But the Iranians in the bitcoin industry deny the government’s allegations, saying the industry is being blamed for a wider problem.
“The miners have nothing to do with the blackouts,” Ziya Sadr, a cryptocurrency researcher in Tehran, told the Washington Post. “Mining makes up only a very small percentage of total electricity capacity in Iran.”
He added: “It is known that the mismanagement and very dire situation of the electricity grid in Iran and the outdated equipment of power plants in Iran cannot support the grid.”
The government itself has pointed out cheap electricity tariffs made possible by government subsidies as another major cause of the blackouts. A board member of the Iranian Blockchain Association told IRNA that the electricity used by cyber currency miners in Iran is roughly the same as the electricity the network lost during distribution.
The stalemate underscores the rocky road ahead for cryptocurrencies, which in theory could thrive in an economically competitive country like Iran, where some have hailed the alternative banking system as a possible way to bypass US sanctions.
In the meantime, there are still electricity problems. In the past few days, overloaded power plants have been shut down as the demand for natural gas to heat houses has increased. Others have reportedly opted for poor quality fuel to power the congested electrical grid. The environmental pollution in the capital Tehran has reached “very dangerous” levels.
If the lights are working, the combination of cheap electricity and high inflation has made Iran an ideal destination for the energy-intensive process of creating or mining digital currencies like Bitcoin, said crypto expert Ali Beikverdi.
Decentralized cryptocurrencies rely on powerful computers to verify that transactions are legitimate by solving complicated math problems. Mining digital coins is a potentially lucrative business that has taken off in Iran in recent years as companies in countries like China and Russia have partnered with Iranian entrepreneurs to create bitcoin farms out of specialized computers.
“Any country with cheap electricity and a huge area would be a perfect place for Bitcoin mining,” Beikverdi, who is from Iran and now lives in Seoul, said in an interview with The Post. “It wouldn’t be profitable in Korea because I would have to spend a lot of money on electricity.”
Bitcoin mining had already started illegally in Iran when the government took notice a few years ago. It started out against miners using computers and other gadgets smuggled in from countries like China, Sadr said.
Then, in 2019, it passed under the table laws regulating the burgeoning industry: miners of Bitcoin and other cryptocurrencies had to apply for a license to operate and import computers and related devices. By registering, the government was able to supply farms with electricity at a higher cost than the general public.
Sadr said the new legislation puts those who are already well established in the industry at a disadvantage as there is no way to legalize operations with illegal devices.
Iranians have reportedly set up bitcoin mining stores in everything from mosques to actual farms to take advantage of the cheaper electricity tariff. The government offered a reward for information about the locations of illegal operations.
The Iranian government has tried other ways to extend control of the industry. Legislators recently passed laws aimed at restricting the use of cryptocurrencies to finance imports and exports with the Iranian central bank as an intermediary. However, the law has not been applied in practice as there is no system for it, Sadr said. The government had announced plans to develop its own cryptocurrency, although no significant progress had been made.
Beikverdi said the appeal of cryptocurrencies has remained strong for many in a politically and economically contested country like Iran. Digital commerce “empowered the individual,” he said. “It helps people get things done financially on a wider scale without relying on countries or governments.”
But both Beikverdi and Sadr said cryptocurrencies alone are not up to the US economic sanctions, which were the toughest to date under the Trump administration and which kept Iran from all types of global trade and international banking system. Since 2018, the US Treasury Department has fined several Iranians for violating sanctions with cryptocurrencies.
“Bitcoin is not a solution for [U.S. sanctions]”Said Sadr.” Bitcoin is just a tool. The sanctions problem is a much bigger problem. It’s a much bigger block for the people. “
President-elect Joe Biden has pledged to lift many of these economic sanctions and return to the Iranian nuclear deal, which Trump stepped down from in 2018 if he and his colleagues in Tehran can agree on terms.
Still, Sadr said it would be a long time before a measurable level of international trade with Iran could be carried out in Bitcoin as the companies are either not interested or unable to work with digital coins right now.
“If there is no market for it, no participants for people who want to import and export with people in Iran … then Bitcoin cannot help,” he said. “Let’s say they know you are an Iranian, that your business is from Iran, then they will not work with you.”