Between love and hate are often only a few power outages: After Iran welcomed bitcoin miners to export energy unhindered by financial sanctions, the government is now banning mining. The reason is more blackouts in many cities and increasing political pressure from the opposition. What effect will this have on trading with BTC?
Iran has banned mining of Bitcoin and other energy-intensive cryptocurrencies for the next four months. This was declared by President Hassan Rohani himself, following renewed blackouts in many cities across the country. The ban will remain in effect until Sept. 22, Rohani said in a televised address. According to the president, 85 percent of mining takes place unlicensed.
Since massive blackouts had already occurred in February, the government has come under heavy criticism for the renewed blackouts. There have been widespread, unannounced blackouts in many cities across the country. These have, writes the opposition movement National Council for Resistance (NCR), “disrupted people’s lives, the operation of factories, treatment in hospitals, as well as businesses, and even shut down more than 2,000 radio towers” This is all the more inconvenient as elections are soon to be held. Therefore, the government is forced to demonstrate activism, even when it threatens to cut its own flesh.
After all, mining is one of the few growth industries in the severely depressed national economy. According to blockchain analysts Elliptic, miners in Iran account for about 4.5 percent of the global hashrate. That figure is an estimate that is as fuzzy as the 8 percent attributed to Iran as recently as February.
No less speculative is Elliptic’s claim, shared uncritically by the Reuters news agency, that Iran is using Bitcoins “to avoid sanctions and export millions of barrels of crude oil.” The analysis firm merely gleans this thesis from long-known media reports that don’t even provide any useful evidence. It does not add its own analysis to this, but ignores the Central Bank of Iran’s statement that Bitcoin plays no role in dealing with the sanctions.
One can now likewise speculate that the blockchain analyst is inflating the issue to stir up fear among financial institutions of inadvertently violating sanctions. For example, the firm warns that every transaction carries a 4.5 percent risk of using its fees to help Iran evade sanctions. This can be avoided by using Elliptic’s software. How this is supposed to work is a mystery to me personally, but – whatever.
The fact is that Iran will lose significant revenue by banning bitcoin mining
Just the exodus of miners from China could become an opportunity for the country to become a mining giant. Why is the government not seizing this opportunity, but destroying it by banning it?
The answer is likely due to the high pressure the mullahs’ government is under. Financial sanctions continue to affect the country severely, the national economy has been shrinking at six or more percent a year for years, the opposition is complaining of nearly 300,000 deaths at the hands of Corona – and now power outages, for the second time in just a few months. The NCR explains that because of the blackouts, respirators that kept Covid patients alive went out.
Under this pressure, the government must present a culprit and a simple solution. State media point to Chinese Bitcoin miners, who, according to the deputy energy minister, have set up mining machines even in schools and mosques. And the Jahane Sanat newspaper on Monday indicted the Chinese “brothers” in bitter tones: Don’t they care that the blackouts are endangering hospitals, universities, farms and hundreds of jobs? “Should everything be subject to the profit of the Chinese?” The people, he said, are under tremendous pressure, households are suffering, and agriculture is on the verge of collapse.
But these accusations against the miners are also directed at the government. The regime is gambling with the lives of the population, the NCR says, in order to circumvent sanctions and finance illegal activities through Bitcoins. Iran has trouble exporting energy directly. Indirectly, however, the country can sell energy abroad if miners convert it into Bitcoins beforehand. So Bitcoin does indeed act as the “economic battery” that the cryptocurrency is sometimes advertised as, albeit in a different sense than intended. The price for this, the NCR laments, is being paid by the people through massive power outages.
The accusations against the miners are also directed against the government
The regime is playing with the lives of the population, according to the NCR, in order to circumvent sanctions and finance illegal activities through Bitcoins. Iran has trouble exporting energy directly. Indirectly, however, the country can sell energy abroad if miners convert it into Bitcoins beforehand. So Bitcoin does indeed act as the “economic battery” that the cryptocurrency is sometimes advertised as, albeit in a different sense than intended. The price for this, the NCR laments, is being paid by the people through massive power outages.
China, the NCR says in another article, is “exploiting Iran’s vast oil and gas resources,” with Chinese miners consuming them in massive quantities for mining. The regime’s dependence on mining has “reached a point at which it is not just burning locally produced crude that would otherwise be exported.” Instead, he said, it consumes electricity that the people need to convert it into a currency “that can generally only be used by the regime and terrorist entities.”
At the same time, however, Iran continues to export large amounts of energy to Iraq and Afghanistan, and the power grid is in notoriously bad shape. Mining Bitcoin and Ethereum is likely to have some contribution to the current energy crisis nonetheless. Neither the government nor the miners seem to have succeeded in transforming the mining into something that would be conducive to the population and economic growth, for example, by channeling revenues into expanding the power grid, modernizing power plants, or improving health care and education. Here, an opportunity was missed.
Bitcoin, it must be stated, has reached a size where the power consumption of mining becomes noticeable even for medium-sized economies. To avert the already smoldering crisis of legitimacy, miners should start using their high returns more for “the greater good.”