Rolling power blackouts have been plaguing Tehran, Iran’s capital, and its surrounding provinces for weeks during October and November. These electricity cuts have disrupted the lives and businesses of many. While multiple factors are believed to contribute to the outages, some suspect that cryptocurrency mining may have played a role.
Iran’s economy has been struggling due to international sanctions imposed over its nuclear program. The country’s fuel reserves have sharply declined, leading the government to sell off more reserves to cover budget shortfalls amid ongoing conflicts in the Middle East and management challenges. Despite a decrease in the use of air conditioners as the weather cooled, demand on the grid remained high in anticipation of the winter months when gas heaters are typically in use.
Simultaneously, the value of bitcoin surged to record highs following the U.S. election victory of Donald Trump. The cryptocurrency peaked at $100,000 for the first time just after the president-elect announced his intention to nominate Paul Atkins, a cryptocurrency advocate, as the next chair of the Securities and Exchange Commission. This spike has raised suspicions that organized cryptocurrency mining activities, which consume significant amounts of power, could be contributing to the power outages in Iran.
Mostafa Rajabi, CEO of Iran’s government-owned power company, expressed concerns about unauthorized individuals exploiting subsidized electricity and public resources for cryptocurrency mining. Iran’s state energy company did not provide a comment on the matter.
Power outages have occurred intermittently in Iran in the past due to aging infrastructure in its power plants. Climate change, including prolonged droughts and reduced water flow in hydroelectric dams, has also been cited as a contributing factor. President Masoud Pezeshkian has taken steps to reduce pollution by halting the burning of mazut, a high-polluting fuel.
Despite being an OPEC member with significant natural gas reserves, fuel reserves in Iran, including diesel and natural gas, remain low. There have been speculations that fuel reserves were sold to address budget shortfalls. Pezeshkian emphasized the importance of conserving energy, especially gas, during the cold weather.
Bitcoin processing centers in Iran have flourished due to subsidized electricity rates, requiring substantial power to operate specialized computers and cooling systems. The allocation of electricity to mining activities has raised concerns about the distribution of power resources.
In the shifting landscape of cryptocurrency mining, miners are adapting by utilizing virtual private networks to cloak their operations. Masih Alavi, CEO of the Iranian-government-licensed mining company Viraminer, revealed that miners are resorting to renting apartments to conceal their mining rigs within empty residences. Alavi disclosed that miners strategically disperse their machinery across various apartments to evade detection.
Recent estimates indicate that Iran processed approximately $1 billion in bitcoin transactions in 2021, a figure that has likely surged in tandem with bitcoin’s meteoric rise. Concurrently, Iran has grappled with a series of disruptive blackouts coinciding with bitcoin’s surge from $67,000 to over $100,000 during its historic rally.
Acknowledging the strain on the power grid caused by unlicensed bitcoin mining farms, Rajabi, the CEO of the state electricity company, announced rewards of $725 for individuals who report such illicit operations. The proliferation of these unauthorized farms has resulted in “an abnormal increase in consumption, disruptions, and problems in power networks,” according to Rajabi, with the energy usage of approximately 230,000 unlicensed devices equating to the entire power needs of Iran’s pivotal Markazi province—a hub for manufacturing in the country.
While Iranian authorities and media have not explicitly linked the surge in bitcoin mining to the persistent blackouts, public speculation runs rampant. Social media users have circulated a video showcasing a massive bitcoin farm unearthed in Iran, prompting questions about how the electrical company failed to detect the operation earlier.
International scrutiny has intensified as the U.S. Treasury and Israel target bitcoin wallets allegedly associated with operations conducted by Iran’s paramilitary Revolutionary Guard to finance militant groups in conflict-ridden regions of the Middle East. This scrutiny raises the specter of potential involvement by the Revolutionary Guard—an influential faction within Iran—in the mining activities.
Conversely, Iranian media regularly report on police raids targeting individual mining operations, underscoring the government’s efforts to curb unregulated mining practices. Against the backdrop of mounting pressure from global geopolitical shifts, including the change in the U.S. administration, Iran appears to view bitcoin as a strategic hedge. Richard Nephew, an expert at the Washington Institute for Near East Policy, posits that Iranian policymakers are grappling with the decision of whether to rely on bitcoin to bolster government finances amid escalating challenges.
Nephew, however, cautions against viewing bitcoin as a panacea for Iran’s economic woes, highlighting the susceptibility of bitcoin wallets to sanctions. The inherent risks associated with digital currencies, particularly in the context of intelligence surveillance and financial compliance, underscore the complexities facing Iran’s foray into cryptocurrency mining.
As the intersection of geopolitics, finance, and technology continues to evolve, the ramifications of Iran’s embrace of bitcoin as both a financial lifeline and a potential source of vulnerabilities remain a subject of intense scrutiny. Amidst these dynamics, the saga of bitcoin mining in Iran unfolds against a backdrop of shifting power dynamics and economic imperatives.
Reporting from Dubai,
