Chinese miners under the shadow of the Iran war: "Once the war breaks out, we will withdraw and sell our machines"

Editor’s note: This article comes from Yiben Blockchain (ID: yibenqkl), author: Pizza Ratchet, and is reprinted with permission from Odaily Planet Daily.

At the beginning of 2020, a huge "black swan" flew out.

On January 3, Iranian commander Soleimani was killed by a US drone strike in Iraq. On the 8th, Iran launched a military counterattack against US military bases in Iraq.

Under this circumstance, the fate of Chinese miners in Iran has attracted much attention. Because of its low electricity prices, Iran was once the first choice for Chinese miners to go overseas, and many Chinese miners have set up camp here.

Now, facing the tense situation, they are worried. Chinese miners who live by electricity have suddenly realized that they are sitting on the crater of the world.

To leave or to stay? Different people have different choices.

Some people decided to withdraw from Iran and dispose of the mining machines on the spot.

Some people decided to stay and wait for a turnaround.

01 Dark clouds

At the beginning of 2020, relations between the United States and Iran suddenly deteriorated, and the whole world held its breath.

In the early morning of January 3, Soleimani, the commander of Iran's Islamic Revolutionary Guard Corps in charge of overseas operations, was killed by a US drone at an Iraqi airport.

Angry Iran began to fight back: at the same time on January 8, dozens of Iranian missiles launched air strikes on US military bases in Iraq.

On the same day, a Ukrainian passenger plane crashed near Tehran, the capital of Iran, killing all 176 people on board. Although Iranian officials said the crash was caused by engine failure, this tragedy was undoubtedly worse.

"Chinese people in Iran are in a panic," Lao Hu, a Chinese miner mining in Iran, told Yiben Blockchain.

In an atmosphere where the US-Iran war seems to be on the verge of breaking out, the price of Bitcoin began to rise sharply.

On January 3, within hours of Soleimani’s death, the price of Bitcoin rose from $6,800 to $7,200. On January 8, after Iran launched a counterattack, the price of Bitcoin rose from $7,800 to $8,400.

In Iran, Bitcoin is even more scarce and valuable.

On January 8, the price of Bitcoin reached 1.2 billion riyals on the Bitcoin over-the-counter trading platform LocalBitcoins.

Based on the official exchange rate of 42,000 riyals to the dollar, the price is equivalent to $28,500.

However, due to previous US sanctions, the black market exchange rate of the rial has long been out of line with the official exchange rate. The war crisis has exacerbated the depreciation of the rial. Bonbast data shows that the current black market price in Iran is 140,000 rials for 1 US dollar.

According to this calculation, the price of Bitcoin in Iran is around US$8,500, which is a premium of more than US$100 compared to the current global market price of Bitcoin of more than US$8,300.

This means that Iranians are using Bitcoin to transfer assets. They include rich people as well as ordinary people.

Google Trends data shows that in Iran, the search index for the word "Bitcoin" increased by 30% compared with the previous week, and "How to get free Bitcoin on the Internet" became a hot search.

Iran’s bitcoin merchants are doing everything they can to meet demand.

On LocalBitcoins, many Iranian merchants not only support rial transactions, but also support payment using gift cards from Amazon, Apple App Store, etc. - in Iran, gift cards linked to US dollars have also become hard currency.

The shadow of war looms over Iran, and Chinese miners wandering in Iran are also drawn into it.

"Our machines in Iran are still mining," miner Liu Yang told Yiben Blockchain.

"Right now, the United States and Iran have only had a skirmish and have not officially started a war. If a war really breaks out, the people can escape, but the mining machines will have to stay in Iran," he said.

Around Liu Yang, some Chinese miners are already preparing to withdraw back to China and dispose of the mining machines on site.

02 Mining History

Going to Iran in West Asia to mine was once the dream of Chinese miners. The legendary electricity price of 5 cents per kilowatt-hour made this place a promised land flowing with milk and honey.

At the end of 2018, the currency market plummeted, and the price of Bitcoin fell to nearly $3,000. In China, mining machines were shut down one after another, and some were even sold at low prices as scrap metal.

Iran, with its low electricity prices, has become the last hope for many Chinese miners. A large number of Chinese miners have gone to Iran in search of the legendary 5 cents per kilowatt-hour of electricity.

Miner Wu Di finally found electricity at 0.5 cents per kilowatt-hour, but did not ship the mining machine to Iran - he found that it was not easy to mine in Iran.

At the beginning, mining in Iran was an underground industry that could only be carried out secretly.

"It's the power plants that secretly sell electricity to miners, or cooperate with miners to mine," said Lao Hu.

In this case, the first problem is how to get the mining machine through customs. The shipping cost of shipping a mining machine to the Iranian port is less than $2. But how to get through customs at the port requires miners to "find a way".

In 2018, Iran’s customs had a backlog of 30,000 to 40,000 Chinese mining machines. Smuggling has become a helpless move for many Chinese miners.

"In June 2019, the Iranian government also ordered the closure of two mining farms, which contained about 1,000 mining machines." Lao Hu said that the miners in Iran were very panicked at the time, fearing that they would be the next to be investigated.

According to a spokesman for Iran's Energy Bureau, the mine was closed because electricity consumption peaks in the summer, and Iran's electricity demand increased by 7% in June. Mining has affected the normal lives of Iranian residents.

Data shows that in Iran, the amount of electricity needed to mine one Bitcoin is enough to supply all the electricity for 24 ordinary households for a year.

"But in the final analysis, it's still a matter of money. The Iranian government subsidizes $1 billion in electricity bills every year, but in the end not much of it reaches the people. It's all fleeced by miners. The government must intervene," said Lao Hu.

However, it wasn’t long before Iran’s mining business took a turn for the better.

On July 22, 2019, the Iranian government’s Economic Committee approved the establishment of a digital currency mining mechanism. As long as relevant companies obtain a license issued by the Iranian Ministry of Industry, they can legally mine.

The Iranian Customs Administration has also set a tax rate for mining equipment. Mining equipment is considered a computing device and is subject to the same tax rate as computers.

Some commentators believe that legalizing the mining industry is a major means for Iran to deal with US sanctions. Iranian official Elyas Hazrati also said that the cryptocurrency industry should be regarded as an official industry in Iran to increase Iran's tax and tariff revenue.

However, after careful study, Chinese miners found that legalizing mining is not a good thing.

Lao Hu said that Iran has set a separate electricity price for Bitcoin mining, with corporate electricity costing $0.07 per kilowatt-hour and individual miners costing $0.05 per kilowatt-hour.

His mine is waiting for approval from the Iranian government. Once the approval is issued, the electricity price will be implemented.

In Iran's free trade zone, electricity prices have risen to 0.25 yuan per kilowatt-hour, not much lower than in China.

"A friend of mine invested in a 200,000-kilowatt mining farm in Iran, spending more than 40 million yuan. Now there is no sign of a return on investment," Sun Bing, who once visited a mine in Iran, told Yiben Blockchain.

"The previous electricity price of 0.5 or 0.10 per kilowatt-hour may never be seen again," said Lao Hu.

The legendary mining paradise is gradually fading away.

03 Miners’ failure

As the situation continues to escalate, the fate of Iranian miners has attracted attention. In fact, they have been in trouble for several months.

Because the legalization of mining has led to an increase in electricity prices, the mining industry has gradually moved underground, but the latter has been severely cracked down by the Iranian authorities.

The Iranian government also stated that individuals who report illegal mining can receive a reward of 20% of the power grid’s electricity losses.

In December, Iranian police seized 12 mining machines that were secretly mining at a dairy farm, along with just $21 worth of bitcoin.

"Five Iranian miners were also arrested in Tehran, and the Tehran police chief also spoke out. Now there are fewer Iranians coming to China to buy mining machines." Wang Jianyi, who runs an Iranian mining farm hosting business, told Yiben Blockchain.

Iranian local media reports on Bitcoin miner arrest

At the end of November, due to rising oil prices, riots broke out in parts of Iran. In order to quell the riots, the Iranian government temporarily interrupted Internet services, forcing many mining machines to shut down.

Many Chinese miners are mining in Iran's free trade zone, where Internet services have not been affected, but everyone is still worried.

"We are all trying to find our own way out," Sun Bing said. "The situation is not good, and the miners who were preparing to enter the mine are starting to wait and see."

Iran is no longer the first choice for Chinese miners to go overseas - Kazakhstan and Uzbekistan have equally abundant electricity resources and a more stable situation.

Some Chinese miners have begun to withdraw from Iran, while local Iranians are purchasing mining machines and joining the mining camp.

This is because, in Iran, owning a mining machine can earn Bitcoins in exchange for scarce US dollars. In Iran, where the currency is depreciating, prices are soaring, and even butcher shops have begun to limit purchases, locals are willing to take risks and place several mining machines at home.

What's more, the chance of being investigated is not high by doing this.

The mining machines in the hands of Chinese miners are gradually changing hands.

"The battlefield is in Iraq, what does it have to do with Iran?" Today, Wang Jianyi is still soliciting business for his Iranian mine.

But he admitted that fewer and fewer Chinese people came to Iran to mine, "The mining machines that came from China will definitely not go back."

Perhaps, he will be the last guardian of these mining machines.

As US-Iran relations become tense and the price of Bitcoin surges, Chinese miners far away in Iran have mixed feelings about this.

Having lost the advantage of electricity prices and a stable environment, escaping from Iran may be their only way out.

As a nomadic people who "live by the water and grass", they are looking for their next stop all over the world.

*The interviewees in this article are pseudonyms.