Uncovering the secrets of Iran’s mining farms: Middle East turmoil, US sanctions, Iran and miners “redeeming each other”

"Electricity" now means time and money. Before the price of the currency falls below the "Iran shutdown price", people hope to connect their mining machines as soon as possible to continue mining Bitcoin.

Uncovering the secrets of Iran’s mining farms: Middle East turmoil, US sanctions, Iran and miners “redeeming each other”

Seeing that Guo Hongcai was offering a reward of 100 bitcoins for the cheapest power station worldwide, Li Ming immediately found him.

During those two days, more than 400 people around the world revealed Guo Hongcai's "imperial list", including Sichuan, Xinjiang, Singapore, Kyrgyzstan, Iran, etc. Among the many competitors, the electricity at 4 cents per kilowatt-hour that Li Ming found in Iran finally won.

Tehran had just entered winter in early November, and there was a light snow on the distant mountains. Li Ming was already busy looking for electricity for Guo Hongcai and the people who came because of Guo Hongcai's call. He had been doing business in Iran for more than ten years, and in Azerbaijan in northwestern Iran, he met the director of a large power station.

The factors that affect miners and mining machines are mainly the price of coins and electricity prices. In the past few months, Bitcoin has plummeted. Mao Shixing, the founder of F2Pool, once told Odaily that 60% of the world's mining machines have been shut down due to the sharp drop in the price of coins.

On the "shutdown coin price" chart of mining machines monitored by several major mining pools, taking the electricity price of 40 cents per kWh as an example, with each round of coin price decline, several mining machine models that turn from profit to loss increase. But in fact, in places where electricity is relatively concentrated, such as Sichuan, Inner Mongolia, and Xinjiang, the electricity price is generally 40 to 60 cents per kWh.

Large numbers of miners turned off their mining machines and sold them at low prices, quietly withdrawing from the "jianghu". However, people like Guo Hongcai who still had financial reserves tried to find places with low electricity prices to continue mining.

Under this situation, the number of people going to Iran to find electricity is growing, as Li Ming, who has been running around in Iran to find a power line, has recently felt. "Electricity" now means time and money. Before the price of the currency falls below the "Iran shutdown price", people hope to connect their mining machines as soon as possible to continue mining Bitcoin.

However, that is Iran, a Middle Eastern country under US sanctions, with a complex historical, religious, political and customary background. Half a year ago, due to US sanctions, the Iranian currency Rial plummeted and the economic situation was very unstable.

Some industry insiders even said that Iran had suddenly confiscated foreign mines, "and once you go there, you may never come back, and end up being used as a tool for others."

With all the complicated factors behind it, the road to opening a mine in Iran is bound to be bumpy.

Established a 500-member "Iran Electricity Search" group

Li Ming met the Azerbaijan power station manager at a large power plant on the border between Iran and Turkey. He was wearing a light brown suit and a big Muslim-style beard. In this Islamic country where politics and religion are combined, the big beard seems to be a pledge of loyalty to the state religion.

This is the third power plant that Li Ming has inspected in the past two months. This inspection trip began when he “revealed Master Bao’s imperial edict.”

On October 22, Guo Hongcai (known as "Bao Erye" in the cryptocurrency circle) posted on Weibo that he was looking for low-cost electricity around the world, and that he would reward 100 bitcoins for successful introductions. Four days later, Guo Hongcai posted a video on Weibo saying that he had received more than 400 messages and finally found a country in the Middle East where electricity was 4 cents per kilowatt-hour, and called on friends in the mining circle to go and investigate. This place is Iran, which is under US sanctions.

Electricity is now the largest expense in mining costs. (Note: The Bitcoin system will issue a difficult problem in each round. The person who solves the problem can obtain the newly generated Bitcoin and bookkeeping fees in this round. The greater the computing power, the greater the possibility of solving the problem. This process is called "mining". At first, mining could be done using computer graphics cards. As the difficulty of calculation continued to increase, people later developed Asic mining machines specifically for a certain algorithm. It has strong computing power, but correspondingly, the power consumption is also very high.)

Since the beginning of this year, the cryptocurrency market has continued to fall, and mining revenue has gradually shrunk. The flash crash at the end of November was the "last straw that broke the camel's back" for the mining industry. Within 10 days, the price of Bitcoin plunged from $6,500 to $3,600, falling below the shutdown price - at this price, the revenue is not enough to cover the cost, so it is better to shut down. The founder of "Kine Sea Club" said that 60% to 70% of miners will leave the market in the "cold winter".

Since the beginning of this year, domestic supervision on mining farms has been tightened, and the electricity costs of miners are still rising. The average electricity price of some mining farms is 0.6 or 0.8 yuan, or even more than 1 yuan.

Li Ming has been receiving friends from China who came to him for electricity these past two weeks. According to data provided by the returnees, the civilian electricity price in Iran is 4 cents per kilowatt-hour, and the lowest price can even reach 3 cents.

Miner Han Shier's first reaction was: "That means we can start the mine again and make a lot of money again."

The income from digital currency or Bitcoin mining mainly depends on the price of the currency. The cost includes the purchase of mining machines, electricity bills, and site fees of the mining farm. Among them, electricity bills are the largest part of the cost, and the price of the mining machine affects the payback period of the mining machine.

At the end of the year and the beginning of the year, the price of Bitcoin once exceeded 20,000 US dollars, and continued to fall after the Spring Festival. According to the shutdown coin price announced by F2pool, based on the comprehensive electricity fee of 0.4 yuan, the four mining machines, Antminer T9 (12.5T), Avalon A741, Shenma Miner M3+ Down-clocked Edition and Antminer S7 (4.05T), had fallen below the shutdown coin price at the end of November.

In other words, the electricity cost used by these mining machines to mine one bitcoin has exceeded the market price of Bitcoin, not to mention the hosting fees and labor costs.

Today, the Bitmain Antminer S9, once recognized as the most cost-effective model in the industry, has also reached the brink of shutdown price. Industry insiders have estimated that more than half of the mining machines in operation on the market are Antminer S9.

When mining profits are generally lower than costs, "mining accidents" occur. Iran's low electricity prices make domestic "miners" eager to move.

“When Bao Erye heard about the low electricity price, he reacted strongly and said he would arrange for many people to come and inspect,” Li Ming told Odaily Planet Daily.

That day, Guo Hongcai immediately created a group for Iran’s electricity search. Within a few hours, the number of members reached 500. Li Ming’s identity was “Iran expert”.

Over the past few weeks, Li Ming has received a steady stream of inquiry calls from China, and has also received several miners who went to Iran for inspection.

Odaily Planet Daily also learned that many large mine owners and mining investors in China have either completed their trip to Iran, are planning to do so, or are continuing to pay attention.

Mining investor Zhang Wen has already purchased a mine in the local area, which may be operational as early as next month.

"People in China are all very anxious to get out because they face the prospect of losing money if they stay in the country," said Li Ming.

Mutual redemption

The domestic mining industry needs "Iran's electricity" to save its financial statements, and Iran also needs trading partners to save its economy and dollar reserves.

Iran has the largest natural gas reserves in the world. Data shows that Iran's proven natural gas reserves are 34 trillion cubic meters. The United States, which ranks fifth, has 10.4 trillion. The natural gas content of one Iran is equivalent to that of three United States.

Adequate natural gas reserves mean low electricity prices. According to a 2009 report by Iran's Izvestia newspaper, Iran's (Tavanir) Electricity Development Company said that Iran's industrial electricity price is 2 cents per kilowatt-hour, which is one-sixth of the world average.

Iran's already low electricity prices have been hit by currency devaluation this year.

Li Ming told Odaily Planet Daily: "The original electricity price in Iran was about 0.16 yuan. After the sanctions, the Iranian currency, the rial, plummeted and was only 0.4 yuan against the RMB."

Zhang Wen, who just returned from Iran, also gave an example to Odaily Planet Daily.

"We stayed in the best local hotel, the same one the Chinese national football team stayed in when they went to Iran to play a game. Before the sanctions, each room was equivalent to 1,200 yuan in RMB. This time I booked it on Ctrip, and it was only 366 yuan after the exchange." He didn't believe it at first and made several phone calls to confirm the price.

As shown in the movie "Argo", the Islamic Revolution in Iran in 1979 was followed by the American hostage crisis, which led to the breakdown of relations between the two countries. The United States also began to impose continuous economic sanctions on Iran. The sanctions were once exempted due to the Iran nuclear agreement, but this year, the United States announced the resumption of sanctions against Iran.

The first round of sanctions came into effect in August, involving the Iranian government's purchase of US dollars; the second round of sanctions was resumed on November 5, involving energy, transportation, and transactions between foreign financial institutions and the Central Bank of Iran.

Iran's economy is mainly based on oil exports. Now that the economy is blocked, the currency has depreciated. In short, the same amount of RMB can be exchanged for more rials, which makes travel cheaper; for local people, it means factory shutdowns and unemployment. Zhang Wen even encountered some people demonstrating in front of the Iranian central bank to protest against currency depreciation and rising prices.

"Many factories in Iran's industrial areas are currently shut down," Zhang Wen described as "depression in all industries." Their mine is located in southern Tehran, and it is a factory that has recently shut down.

The rial has plummeted, the official exchange rate is in name only, and not many local people can exchange it. The black market exchange rate is 4 times the official exchange rate.

In October, cloud computing operator Chen Peng visited Iran for about half a month. He told Odaily Planet Daily that when he first arrived in Tehran, 1 US dollar could be exchanged for about 30,000 rials, which later became 45,000, and finally 155,000.

After exchanging 20,000 U.S. dollars, he emptied out both backpacks to store the money, and each time he went out he only carried cash.

The new round of US dollar sanctions not only lowers Iran’s electricity prices, but also causes a shortage of US dollars across the country.

Iranians are more inclined to hold US dollars due to the severe depreciation of the rial; the Central Bank of Iran is unable to accept US dollar remittances due to US sanctions, but the US dollar is an important medium for international trade, so there is also a serious shortage of US dollars.

According to locals, the Central Bank of Iran paid a lot of price to get the US dollars.

"Can you imagine how they get the US dollars? It's very primitive." Zhang Wen heard from a senior Iranian official that the central bank used manpower to transport US dollar cash from Dubai. This seemingly absurd move is actually true. Charles is a "dollar porter" serving the Central Bank of Iran, and this requires a licensed bank to do it.

He needed to advance the money himself and get US dollars in cash from a bank in Dubai. "We brought the money back from Dubai in boxes."

Charles will take a suitcase to Dubai by plane. "You can only take one suitcase at a time. Depending on the size of the suitcase, it can hold 1.5 million, 5 million, or 7 million US dollars. On the return trip, I will buy a seat specifically for the suitcase full of US dollars. This is safer."

He also stressed that the cheaper the box, the better, because it would be directly handed over to the Central Bank of Iran. As soon as he got off the plane and went through customs, someone from the Central Bank of Iran was waiting to take the box of money away and hand over a receipt.

According to people familiar with the matter, the Iranian government is also studying digital currency mines and exchanges. Industry insiders analyzed that exchanges may help the Iranian central bank avoid US dollar sanctions by exchanging digital currencies for US dollars. It is rumored that Russia and other countries are considering using cryptocurrencies to avoid US sanctions.

"So, the current situation is that Bitcoin mines occupy a large area and consume a lot of electricity, and can become major customers of local power plants; foreign customers can bring in large quantities of US dollars. For Iran, where all industries are depressed and cross-border trade is restricted, the arrival of mines is like timely help." said a digital currency practitioner who has been in Iran for many years.

In his view, Iran and the miners who are desperately looking for cheap electricity around the world to survive can be said to be "saving each other."

Unrestrained and artistic

The digital currency industry seems to be able to alleviate Iran’s economic difficulties, but not many people dare to go to Iran.

"It's useless to have money but no life to spend it," joked a miner.

"I won't go. I'm going to the United States." Zhang Wen's invitation was rejected by his colleagues.

"Girls are better off not going." The mine owner who is planning to visit Iran next month warned the reporter from Odaily Planet Daily.

And all this is due to Iran’s complex political background and turbulent situation.

Iran, once known as the Paris of the East, was once westernized. However, the mixture of westernization and despotism led to the Islamic Revolution in 1979, and the policy of "total westernization" turned into "total Islamization."

In 1979, Iran adopted an Islamic constitution through a national referendum, implementing a system of combining politics and religion and taking the teachings of Shia Islam (also known as the Twelver Shia) as the founding principle of the country.

Due to the unique system, US sanctions and Iran's location in the war-torn Middle East, the Chinese people have the impression that Iran is traditional, turbulent and religiously radical. Several researchers who went to Iran were dissuaded by their families for personal safety reasons.

But after returning, they all said that it was surprisingly safe there. "The locals need to do business with foreigners, and they welcome the Chinese."

"When locals see Chinese people, they will stare at them unconsciously, just like we saw foreigners in the 1980s. But they especially welcome Chinese tourists. On our way back, we rested at a toll booth on the side of the highway. Several big brothers knew we were from China and invited us to their homes for dinner." Zhang Wen told Odaily Planet Daily that they definitely couldn't accept the invitation as they had to catch a flight, so they could only take photos with the locals.

China is an important oil exporter to Iran. The local tour guide also told Zhang Wen that the local government's publicity in the mass media would make them feel that China has given Iran a lot of help. When talking about his impression of Iran before departure, Zhang Wen also found it funny.

"I was also scared before I went, but the boss said that I had to go in person, otherwise the matter could not be pushed forward. I had no choice but to go."

He originally thought that Iran was a traditional and dangerous country, but after arriving there he discovered that he had many misunderstandings about the country.

"But some things are people's customs, you still have to respect them." Driving to the mine in southern Tehran, Zhang Wen saw the beautiful scenery on the roadside and got out of the car to take pictures. Unexpectedly, he was scolded by two local men who were picnicking on the roadside and asked to delete the photos. It turned out that Zhang Wen took the two female companions in the photo.

"Locally, if you want to take a photo with a single woman, you need her consent; if you want to take a photo of someone else's wife or girlfriend, you also need the man's consent." Zhang Wen said that a wife is a man's property. "Just like this computer is yours, I have to ask you before taking a photo."

Zhang Wen was deeply impressed by the heavy makeup and gauze on the noses of local women. In public places, women can only show their faces. No matter how beautiful their figures and skin are, they are all covered under the burqa. The charm that needs to be shown to the outside world is all squeezed on this face, so that Iran has become the world's "big country of rhinoplasty."

Li Ming, who has lived in Iran for more than ten years, said again and again in interviews that this country has been demonized.

"Women have to wear headscarves and men cannot wear vests, otherwise the moral police on the road can take action at any time." Li Ming said that these customs are seen in China only because of local laws and regulations; in his eyes, real Iranians are actually free and unrestrained and full of artistic atmosphere.

"No one talks about Islam every day. Very few young Iranians go to church." Traditions are disappearing among the younger generation.

Therefore, in the view of Li Ming and Zhang Wen, the risk of opening a mine in Iran lies not in personal safety, but in whether the machines themselves are safe.

Difficult to operate and high risk

It can not only help each other in times of need, but also dispel the myth of "personal safety", so is it a natural thing to open a mine in Iran?

In fact, it is not easy to actually set up a Bitcoin mine in Iran. There are great policy risks, compliance and operational difficulties, as well as exchange rate fluctuations.

First of all, regulatory attitude and compliance with electricity use are a big problem. It is understood that Iranian regulators are still studying digital currency-related products, and there are currently no compliant mining farms built by foreigners.

Zhang Wen had a friend who was doing small-scale mining in the local area, but his machine was suddenly confiscated. In addition, Iran's armed forces are divided into two parts: government forces and the Revolutionary Guards, which are absolutely obedient to the Supreme Leader. The latter is more powerful and controls Iran's main economy.

It is easy to get cheap electricity, but it is not easy to get compliant electricity. Li Ming said that Iran's civilian electricity price is about 4 cents, and you can get the civilian electricity price by contacting the power station.

"Electricity costs 3 to 6 cents in Iran, but is it compliant?" Zhang Wen told Odaily Planet Daily that Iran's electricity price system is extremely complicated. It is not only divided into civil and industrial electricity, but also into peak, daily and off-peak periods. Electricity above 30 megawatts is more expensive.

He said that Iran does have electricity that costs a few cents. "China also has it, like the hydropower in the mountains and basins of Sichuan that is privately cooperated with power plants, not state-owned power. Although Iran's electricity is very cheap, there is also the possibility of asset loss. If there are no resources, it is easy to be seized."

Therefore, this month, Zhang Wen brought his clients to Iran to visit local senior officials, hoping to negotiate compliant low-priced electricity.

"We don't want to work with power plants alone. Once something goes wrong, it's easy to lose all our money, so we have to comply with regulations as much as possible." Zhang Wen estimates that 500,000 kWh of electricity (about 300,000 mining machines) will be needed per hour in the future, with an investment of more than 20 million US dollars.

This scale of electricity consumption surprised and delighted local officials, and was a timely help for a country short of dollars.

They negotiated with Zhang Wen that the average compliant industrial electricity consumption was more than one cent, and they agreed to issue an electricity license.

"Compared with the domestic shutdown price, it is more than enough. Abroad, compliance and safety are the top priority. We also have to be responsible to our customers," said Zhang Wen.

He plans to go to Iran again in December to push for the license. If all goes well, he expects the mine to start operations in as little as a month.

Now that we have low prices and compliance, the second question is: how do you pay the electricity bill?

The international clearing system SWIFT has stopped providing services to the Central Bank of Iran, which is equivalent to cutting off the official channels of the US dollar from Iran.

"Under this round of sanctions, Kunlun Bank, the only window for China to trade with Iran, has been closed," Zhang Wen said. "If Chinese want to do business with Iran, they can basically only do so through underground banks."

The way it works is as primitive as mentioned above: the money is transferred to a bank account in Dubai, and then someone is asked to bring it back, otherwise it can only be kept abroad.

Iran is short of US dollars because it is no longer possible to remit US dollars to the country through normal channels. If there are no local resources, this operation may be a big problem.

In addition, some industry insiders are worried that changes in the international situation may also affect local electricity prices. "The United States can restart sanctions today and stop them tomorrow." If this is the case, once there are mining machines in the local area, it will be troublesome.

"The machines that go out are not going to come back," a miner said in a tragic but honest manner. He said that he could put some obsolete machines outside, that is, sell them by weight.

"The advantage of opening a mine in Iran is that electricity is cheap, but the disadvantage is that the country is under sanctions. In fact, it is more suitable for individuals to do it, because large companies are afraid of being sanctioned." Zhang Wen concluded. He also added, "I dare not do it too big, for fear that the locals will know. Safety is the first priority when doing business overseas."

"It's hard to evaluate there, there are both good and bad opinions." Some domestic mine owners are still waiting and watching. After all, the situation in Iran is not something that everyone can bear. As an industry insider engaged in mining machine hosting said, "Profits are proportional to risks."