Power outages rekindle controversies over Bitcoin mining in Iran

Rolling power outages that have brought the country to a standstill in many areas has once again sparked controversies over the role of ‘illegal’ Bitcoin mining in overburdening the electricity grid.

While underscoring that illegal bitcoin mining was not the sole reason for the current energy crisis, Iran's minister of energy, Abbas Aliabadi, told reporters after a cabinet meeting Wednesday that citizens who provide the government with information on unauthorized mining activities would receive a cash prize.

“I will not disclose the amount of the bounty but it will be considerable,” Aliabadi said.

When reporters asked if certain economic enterprises or individuals organized illegal crypto-mining activities, Aliabadi responded that authorities had discovered both large-scale organized and domestic activities. “I don’t have a figure to announce now but there has been a considerable number of them,” he said.

Mostafa Rajabi, the CEO of Iran's government-owned energy company, TAVANIR, in a meeting with judiciary officials on December 2 urged the Judiciary to take appropriate action against cryptocurrency miners using highly subsidized electricity for personal gain. Currently, there is no dedicated legislation against cryptocurrency mining with subsidized energy.

Iran recognized cryptocurrency mining as a legal industry in 2018. In June 2019, however, authorities blamed illegal cryptocurrency mining for an unusual seven percent spike in electricity usage.

Bitcoin mining, which has a high carbon footprint, is usually carried out in high-tech data centers making huge demands on the electricity grid due to the many computers required to process and verify transactions before they are recorded on the cryptocurrency ‘blockchain.’

Consequently, the use of subsidized industrial electricity for mining was banned and authorities said they had seized around 1,000 mining machines from two mining farms at two derelict factories in Yazd Province.

The media also reported crypto-mining at some state-sponsored establishments such as mosques that pay highly reduced rates for energy.

In January 2021, some energy industry officials again blamed illegal crypto-mining for power outages in the capital Tehran, and elsewhere.

Some political activists and journalists alleged that “a military entity”, presumably the Revolutionary Guards, had established a joint 175-megawatt bitcoin mine in collaboration with Chinese investors at Rafsanjan Special Economic Zone (RSEZ) in Kerman Province, which benefitted from cheap electricity tariffs offered to those mining cryptocurrencies.

But experts say the power supply crisis has much deeper roots than cryptomining including the dilapidation of power plants and failure to store enough fuel for running them in winter.

“The Blockchain network is so transparent that it shows every country’s mining share. Iran's share of the whole Bitcoin network (both authorized and illegal) has dropped to under 0.1 percent,” an Iranian cryptocurrency expert behind Coinicap Telegram channel said in a tweet on December 16.

Some figures offered about the number of Bitcoins mined legally and illegally in Iran by Omid Ghaibaf, the spokesman of the ministry of industries in September 2022 suggested that Iran had a share of around eight percent in the global Bitcoin mining.

Iran's power outages got much worse in August during the country’s most sever heatwaves in fifty years and have developed into an energy crisis that has forced the government to fully or partially shut down schools, universities, government offices in most areas of the country in the past few days. Only four provinces out of the 31 have remained unaffected by the closures so far.

The outages are also seriously affecting large and small industries, including the steel industry. According to Iranian media daytime supply to many industrial compounds was cut off to decrease the demand on the national grid.

“The damages resulting from power outages in the country amount to over $25b a year,” Bargh News, a news website dedicated to the electricity industry, wrote last week, calling the current situation a “super-crisis”.