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Iran's capital and major cities have been plunged into darkness in recent weeks, with millions experiencing power outages that lasted for hours. Traffic lights went out. Offices went dark. Online classes ground to a halt.
As toxic smog blanketed Tehran’s skies and the country grappled with a pandemic and other growing crises, social media was abuzz with speculation. Soon, the finger was pointed at an unexpected culprit: Bitcoin.
Within days, as discontent spread among residents, the government launched a widespread crackdown on Bitcoin mines, which require huge amounts of electricity to power specialized computers and keep them running cool, a burden on Iran's underdeveloped electrical grid.
Iranian authorities have shut down 1,600 mining farms across the country, including one that was legally authorized to operate, in a series of conflicting moves that has sowed confusion in the cryptocurrency industry and fueled suspicions that Bitcoin has become a scapegoat for the country’s deeper problems.
Cryptocurrencies have surged in popularity in the country since the United States unilaterally withdrew from the Tehran nuclear deal in 2018 and reimposed sanctions on Iran.
For Iran, anonymous online transactions in cryptocurrencies allow individuals and companies to circumvent economic sanctions. Bitcoin offers an alternative to cash printed by sovereign governments and central banks — and in Iran and other sanctioned countries, such as Venezuela, it is a more stable form of money than local currencies.
“Iranians understand the value of this currency better than anyone else because we don’t have access to any kind of global payment network,” said Zia Sadr, a bitcoin expert in Tehran. “Bitcoin shines here.”
Iran’s extremely low electricity costs have enabled the country’s cryptocurrency mining industry to take off. Electricity costs about 4 cents per kilowatt-hour in Iran, compared with 13 cents in the United States.
Iran is one of the top 10 countries in the world for Bitcoin mining capacity, consuming about 450 megawatts of electricity per day. The United States consumes 1,100 megawatts.
In windowless warehouses on the outskirts of Tehran and in southern and northwestern Iran, rows of computers hum as they crunch highly complex algorithms to verify transactions, called blocks, which are added to a public record known as the blockchain.
Miners receive fees in the form of bitcoin for adding a new block to the blockchain, providing an excellent alternative to the country's collapsing currency. When the Iran nuclear deal was reached in 2015, the Iranian rial was trading at 32,000 to the dollar, but has now fallen to around 240,000 rials to the dollar.
Iran’s government has sent conflicting signals about Bitcoin. On the one hand, it wants to capitalize on the digital currency’s opportunities to enable transactions that are not regulated by the U.S. It has approved 24 Bitcoin processing centers that consume about 300 megawatts of energy per day, attracted tech-savvy Chinese entrepreneurs to duty-free zones in the south of the country, and allowed the import of computers used for mining.
Amir Nazemi, deputy minister of telecommunications and information, declared last week that cryptocurrencies “could be helpful” as Iran grapples with sanctions.
On the other hand, the government has also expressed concerns about money laundering and cybercrime.
It is well known that some Iranian miners use ransomware in cyberattacks. For example, in 2018, two Iranian men were indicted for their involvement in a large-scale cyberattack on the U.S. city of Atlanta. On Thursday, British cybersecurity company Sophos reported that there is evidence that cryptocurrency miners in the southern Iranian city of Shiraz are linked to malware that secretly controls thousands of Microsoft servers.
Iran is now cracking down on unauthorized Bitcoin mining farms through frequent manhunts. Those who are authorized to mine cryptocurrencies are required to pay higher electricity bills, and miners complain that this is a deterrent to their investment.
Mohammad Reza Sharafi, head of the country’s cryptocurrency miners association, said that while the government has licensed thousands of mining farms, only dozens of servers are active because bitcoin miners pay five times more for electricity than steel mills and other industries.
Now, miners say the government’s decision to shut down legally operating bitcoin mines appears to be an effort to deflect concerns about recurring power outages in the country.
A video showing the massive Chinese cryptocurrency mining farm humming as Tehran plunged into darkness last week spread like wildfire online, sparking outrage over excessive electricity use for bitcoin. Days later, the government shut down the mine, even though it had authorization to operate.
"Priority is given to homes, businesses, hospitals and other places," said Mostfa Rajabi Mashhadi, spokesman for Iran's electricity supply department, noting that illegal mines consume about 260 megawatts of electricity per day.
While Bitcoin mining puts a strain on the power grid, experts say it is not the real reason behind Iran’s power outages and air pollution. Iran’s Ministry of Telecommunications estimates that Bitcoin consumes less than 2% of Iran’s total energy production.
“Bitcoin is an easy victim here,” said Kaveh Madani, a former deputy environment minister in Iran, adding that “decades of mismanagement” had led to a growing gap between Iran’s energy supply and demand.
Bitcoin “is not energy insignificant, but energy shortages don’t happen overnight,” he said. “They just need a trigger.”
A sharp drop in supply and a surge in demand, such as this winter when more people stay home, can upset the balance of power. Authorities reported an 8% increase in gas use for home heating this year, which the Tehran Electricity Supply Company said had led to a “supply shortage at the state power plants.”
Sanctions targeting Iran’s aging oil and gas industry have exacerbated the challenge. Iran can’t sell its products abroad. If some of the hazardous oil extracted isn’t sold or shipped, it must be burned quickly — at 20 percent of the country’s power plants, according to environment ministry officials. The smoldering fuel darkens the sky, especially when the weather turns cold and winds carry emissions from nearby refineries and industrial sites toward Tehran.
During the blackout, a thick blanket of pollution blanketed the mountains and hung over the city, with dangerous levels of fine particulate matter soaring to more than 200 micrograms per cubic meter.
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