Following the legalization of mining, Iran plans to introduce annual mining licenses

After legalizing digital currency mining activities, Iran has recently been focusing on formulating relevant regulations.

According to a draft proposal for a new Iranian cryptocurrency mining regulation obtained by Coindesk, both registered and licensed cryptocurrency mine owners will need to submit information, including a list of business activities, estimated investment value, current employment status, mine lease agreement, mining machine value, and mining period; in addition, licenses will need to be renewed every year.

Sources in the capital, Tehran, said the draft was expected to pass official approval.

In the past two years, Iran's cryptocurrency mining industry has grown rapidly, and it continues to attract overseas and local miners with extremely low costs (as low as $0.006 per kilowatt-hour). In comparison, the electricity provided by hydropower stations in the southwest of the country usually costs about 0.15 RMB (about $0.02 per kilowatt-hour) during the summer flood season. During the low water season, the cost of electricity may reach $0.04 per kilowatt-hour. The reason why Iran's electricity prices are so low is largely due to government subsidies for electricity.

According to a survey of more than 1,600 Iranian crypto users by market analysis firm Gate Trade, 35% of respondents earn income through mining, and 70% are interested in learning more about the local mining industry. An unnamed Tehran source said that most of the miners he knows are "under the radar" and avoid taxes by importing equipment through the black market.

In fact, the Iranian government had a very ambivalent attitude towards the crypto mining industry before July 2019. At the end of June, Iranian authorities confiscated about 1,000 Bitcoin mining machines. Prior to this, Iran’s Ministry of Energy also announced that they planned to cut off the power supply to crypto mining operations suspected of using state-subsidized electricity.

But since July, the Iranian government has officially considered the legality of mining. On July 6, Mohammad Javad Azari Jahromi, Iran’s Minister of Information and Communications Technology, emphasized the potential of cryptocurrency mining and called for the formalization of the business in Iran. On the 11th, Abdol Nasser Hemmati, Governor of the Central Bank of Iran, once said that the Iranian government is planning to authorize cryptocurrency mining, but with two conditions: 1. Mining of international cryptocurrencies should be based on the price of exported electricity; 2. The mined cryptocurrencies should be fed back into the national economic cycle.

At the end of July, Iran finally recognized the grassroots industry and promised to adopt a legal licensing process. At a cabinet meeting chaired by President Hassan Rouhani, the Iranian government has approved crypto mining as an industrial activity and stated that those involved should obtain the necessary licenses from the Ministry of Industry, Mining and Trade. According to the decision, those who use cryptocurrencies should accept their risks, and the government and banking system will not provide any guarantees for them. In addition, Iran's mining licenses are only applicable to miners whose equipment requires 30 kilowatts, which may exclude homemade mining equipment or small operations.

The decision also states that the use of digital currencies in domestic transactions is not allowed. Crypto mining, like other industrial activities, is subject to taxation unless individuals export cryptocurrencies and bring the proceeds back to the country. This is considered the first step in legalizing cryptocurrencies in Iran. Some experts believe that cryptocurrencies can be used to mitigate the impact of the severe economic sanctions imposed by the United States on Iran.

Prior to this, the U.S. Congress had once tried to prevent Iran from getting involved in cryptocurrency mining. Saeed Zarandi, assistant minister of Iran’s Ministry of Commerce and Supply, once publicly stated that the U.S. Congress believes that cryptocurrency is a tool for evading sanctions and money laundering, and is therefore trying to pass legislation against Iran’s acquisition of cryptocurrency.

On August 4, the Iranian cabinet approved and published a bill that denied the legality of using cryptocurrencies for trade activities in Iran, while further supplementing the details of mining regulations. The bill stipulates that if miners obtain approval from the Iranian Ministry of Industry, digital currency mining is allowed in Iran under certain conditions, but authorized mines should charge fees for electricity or natural gas used for power generation based on the price of Iranian energy exports; mining cannot be carried out within 30 kilometers of all provincial centers; if foreigners want to establish underground mining sites in special economic zones, the Iranian Ministry of Industry will have the right to delegate power to relevant departments of the special economic zones.

Although the regulations are stricter, the industry voice is positive. A local source said he supports the move because it can lay the foundation for the sustainable development of the country's mining industry. For example, if there are too many miners in one area, the authorities can encourage miners to distribute operations throughout the area.

The second anonymous source said: "Iran's electricity industry is not a private enterprise but a state-owned enterprise. The authorities need to find a way to balance the mining operations without damaging the grid." He believes that although the regulations are mainly aimed at medium and large mine owners, he still does not believe that this legislation can completely curb small miners from joining the mining army. He believes that "there will be a lot of underground mining operations, a lot of individual miners mining at home, which may cause a shock to the grid."

A third local source optimistically predicted that Iran will become one of the world’s largest players in Bitcoin mining next year.