Iran’s capital and major cities were plunged into darkness in the past few weeks as rolling outages left millions without electricity for hours. Traffic lights died. Offices went dark. Online classes stopped.
With toxic smog blanketing Tehran’s skies and the country buckling under the COVID-19 pandemic and other mounting crises, social media has been rife with speculation. Soon, fingers pointed at an unlikely culprit: bitcoin.
Within days, as frustration spread among residents, the government launched a wide-ranging crackdown on bitcoin processing centers, which require immense amounts of electricity to power their specialized computers and to keep them cool — a burden on Iran’s power grid.
Illustration: Yusha
Authorities shuttered 1,600 centers across the country, including, for the first time, those legally authorized to operate.
As the latest in a series of conflicting government moves, the clampdown stirred confusion in the crypto industry — and suspicion that bitcoin had become a useful scapegoat for the nation’s deep-rooted problems.
Since former US president Donald Trump in 2018 unilaterally withdrew from Tehran’s nuclear accord with world powers and reimposed sanctions on Iran, cryptocurrency has surged in popularity in the Islamic Republic.
For Iran, anonymous online transactions made in cryptocurrencies allow individuals and companies 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, such as Venezuela, a more stable place to park money than the local currency.
“Iranians understand the value of such a borderless network much more than others, because we can’t access any kind of global payment networks,” said Ziya Sadr, a Tehran-based bitcoin expert. “Bitcoin shines here.”
Iran’s generously subsidized electricity has put the country on the cryptomining map, given the operation’s enormous electricity consumption. Electricity goes for about US$0.04 per kilowatt-hour in Iran, compared with an average of US$0.13 in the US.
Iran is among the top 10 countries with the most bitcoin mining capacity in the world — 450 megawatts (MW) a day. The US network has a daily capacity of more than 1,100MW.
On Tehran’s outskirts and across Iran’s south and northwest, windowless warehouses hum with heavy industrial machinery and rows of computers that crunch highly complex algorithms to verify transactions. The transactions, called blocks, are then added to a public record, known as the blockchain.
“Miners” adding a new block to the blockchain collect fees in bitcoins, a key advantage amid the country’s currency collapse.
Iran’s government has sent mixed messages about bitcoin. On one hand, it wants to capitalize on the soaring popularity of digital currency and sees value in legitimizing transactions that fly under Washington’s radar. It authorized 24 bitcoin processing centers that consume an estimated 300MW of energy a day, attracted tech-savvy Chinese entrepreneurs to tax-free zones in the country’s south and permitted imports of computers for mining.
Iranian Deputy Minister of Information and Communications Technology Amir Nazemi this month said that cryptocurrency “can be helpful” as Iran struggles to cope with sanctions on its oil sector.
On the other hand, the government worries about limiting how much money is sent abroad and controlling money laundering, drug sales and Internet criminal groups.
Iranian cryptocurrency miners have been known to use ransomware in sophisticated cyberattacks, such as in 2018 when two Iranian men were indicted in connection with a vast cyberassault on the city of Atlanta.
On Thursday, British cybersecurity firm Sophos reported that it found evidence tying cryptominers in Iran’s southern city of Shiraz to malware that was secretly seizing control of thousands of Microsoft servers.
Iran is now going after unauthorized bitcoin farms with frequent police raids. Those who gain authorization to process cryptocurrency are subject to electricity tariffs, which miners complain discourage investment.
“Activities in the field are not feasible because of electricity tariffs,” said Mohammad Reza Sharafi, head of the country’s Cryptocurrency Farms Association.
Despite the government giving permits to 1,000 investors, only a couple of dozen server farms are active, because tariffs mean bitcoin farms pay five times as much for electricity as steel mills and other industries that consume far more power, he said.
Miners say that the government’s decision to close down major bitcoin farms operating legally seems designed to deflect concerns about the country’s repeated blackouts.
As Tehran went dark last week, a video showing industrial computers whirring away at a massive Chinese cryptocurrency farm spread online like wildfire, prompting outrage about bitcoin’s outsized thirst for electricity. Within days, the government closed that plant despite its authorization to operate.
“The priority is with households, commercial, hospitals and sensitive places,” said Iranian Ministry of Energy spokesman Mostfa Rajabi Mashhadi, adding that illegal farms use about 260MW of electricity per day.
Although bitcoin mining strains the power grid, experts say that it is not the real reason behind Iran’s electricity outages and dangerous air pollution.
The Iranian Ministry of Information and Communications Technology estimates that bitcoin consumes less than 2 percent of the country’s total energy production.
“Bitcoin was an easy victim here,” said Kaveh Madani, a former deputy head of the Iranian Department of Environment, adding that “decades of mismanagement” have left a growing gap between Iran’s energy supply and demand.
Bitcoin “mining’s energy footprint is not insignificant, but these problems are not created overnight,” he said. “They simply need one trigger to spiral out of control.”
A sharp drop in supply or spike in demand, such as during this winter when more people are staying home because of the pandemic, can upset the balance of a grid that draws mostly from natural gas. Authorities reported that households have increased their heating gas usage by 8 percent this year, which Tehran’s electric supply company said led to “limitations in feeding the country’s power plants and a lack of electricity.”
Sanctions targeting Iran’s aging oil and gas industry have compounded the challenges, leaving Iran unable to sell its products abroad, including its low-quality, high-sulfur fuel oil known as mazut. If the hazardous oil is not sold or shipped, it must be swiftly burned — and it is, in 20 percent of the country’s power plants, environmental official Mohammad Mehdi Mirzai said.
The smoldering fuel blackens the skies, particularly when the weather cools and wind carries emissions from nearby refineries and industrial sites into Tehran.
During the power blackouts, thick layers of pollution coat mountain peaks and hover over cities, with readings of dangerous fine particulate pollution spiking to more than 200 micrograms per cubic meter, a level considered “dangerously” unhealthy.
As the government publicized its clampdown on bitcoin farms, miners balked at all the blame over their energy guzzling.
Many said that despite its potential to become a cryptocurrency utopia, Iran would continue to fall behind.
“These moves harm the country,” cryptocurrency consultant Omid Alavi said. “Many neighboring nations are attracting foreign investors.”
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