Iran Presses Pause on Crypto Mining, What Does It Mean?

Iranian President Hassan Rouhani announced today (July 7) that all Bitcoin mining operations must "completely" cease production to ensure that there will be no power outages in important areas. Iran's "mining suspension" is not uncommon, and it may even happen again. But miners don't need to worry too much. In the short term, the mining environment in "crypto-friendly" Iran is still one of the best in the Middle East.

According to statistics from the Bitooda website, Iran is the world's third largest holder of Bitcoin after the United States and China, accounting for 8% of the total. Iran has long had a clear (but also divided) stance on cryptocurrencies - externally, it encourages the use of cryptocurrencies to earn foreign exchange and circumvent economic sanctions from Western countries; internally, it prohibits cryptocurrency transactions and makes their use illegal in the country.

We believe that Iran cannot do without Bitcoin for three reasons:

1. Avoid economic sanctions

As early as 2017, Iran began to embrace cryptocurrencies. Although the price of Bitcoin is highly volatile and uncertain, Iran welcomes "regulated" Bitcoin. In the final analysis, the birth of cryptocurrencies such as Bitcoin can help countries such as Iran to circumvent Western economic sanctions. In May 2018, Iran reached a cooperation with Russia on the use of digital currency to resist economic sanctions. On September 17, Iran, North Korea, Russia, Venezuela and other countries formed a digital currency alliance to fight back against US economic sanctions. Since then, the United States has continuously blocked Iran's activities related to the encryption field, and even proposed the so-called "Iran Illegal Finance Act" in December 2018 to facilitate the smooth implementation of sanctions.

2. Attract foreign exchange income

According to a report by an Iranian think tank on March 2, the entire Bitcoin network will bring the Iranian government $22 million in revenue each year in the field of bulk commodity transactions alone. As an export-oriented country, Iran is good at using cryptocurrency as a tool. On January 30, 2019, Iran negotiated with eight countries, including Switzerland, South Africa, France, Britain, Russia, Austria, Germany and Bosnia, on the use of cryptocurrency in financial transactions, hoping that Iran would be able to attract foreign investors into the country. In December 2019, Iran also proposed to create a cryptocurrency for Muslim countries to replace the US dollar.

3. Efficient use of energy

Countries outside the "Western banking system" such as Venezuela, Brazil and Iran have oil but cannot sell it freely to the market. Some analysts say that regardless of policy restrictions, these countries will inevitably mine cryptocurrencies on a large scale based on oil-based energy in the next decade driven by the market. The Iranian authorities are more relaxed about mining than about cryptocurrency trading. As early as September 2018, Iranian officials admitted that "crypto mining is an industry", marking the legality of mining in the country. Since then, the introduction of many regulatory actions on the mining industry has actually promoted the sustainable development of the mining industry. Internally, Iran has continuously proposed policies and regulations to urge miners and large miners to register in compliance; externally, it has continuously accepted foreign capital to invest in mining in Iran. After China cleared a large number of mines in June, Iran also became one of the first positions to be transferred to the mining industry.

Although cryptocurrency and its industry have brought many benefits to Iran, there are also hidden dangers:

1. Power crisis

In response to the power crisis in May this year, a spokesman for Iran's Ministry of Electricity said: "The severe power crisis was caused by hot weather, industrial prosperity leading to increased electricity consumption, drought causing a decrease in hydropower generation, and Iran's private cryptocurrency 'mines' consuming too much electricity. "Although Iran has a large amount of oil resources, hydropower is still the main way of generating electricity in Iran. The continued mining of crypto mines has brought serious troubles to the lives of local people. The mines were announced to be closed that month, but some miners are still operating illegally. On July 5, people in many cities organized protests. The mines, which are increasing in size and energy consumption, should be reduced. Of course, the power outage in the mines is only temporary and will be restored on September 22. The shortage of electricity resources has led to some red lines in the distribution of mining companies. The restrictions in the capital Tehran and the central city of Isfahan are more stringent.

2. Domestic inflation and currency crisis

In April 2018, Iran imposed a strict cryptocurrency ban due to a currency crisis in its national currency, the Rial, but the ban was lifted shortly afterwards. Iran has also taken some measures to balance the gains of cryptocurrencies with the depreciation of its own currency. In 2019, Iran required registered miners to sell their revenues to banks. On May 7 this year, the Central Bank of Iran (CBI) banned the trading of Bitcoin and other cryptocurrencies mined outside the country. Lawyer Fatemah Fannizadeh said this means that Iran hopes to more actively export Iranian mined tokens, encourage mining, and further combat capital flight.

Iran's cryptocurrency policy and related laws and regulations are formulated around the above factors. In just a few years, we have witnessed its policies repeatedly fluctuating between relaxation and tightening. As an oil-rich, export-oriented country in the Middle East, Iran is unlikely to give up cryptocurrency and its industry in a short period of time, so miners do not need to worry too much about the power outage at the mine, even though it lasted for a long time.

Original article by Rilak. For reprint/content cooperation/coverage, please contact [email protected]; any illegal reprint will be prosecuted.