Finance

Energy costs push bitcoin mining in Iran underground

January 24, 2024

Iran suffers frequent power outages and this, combined with high energy costs, presents hurdles to bitcoin miners

Iran’s bitcoin sector shrinking
Break-even point far off
Regulated industry ‘almost dying’

Rising energy costs and onerous government regulations are forcing much of Iran’s once-blossoming bitcoin mining sector to operate clandestinely, a top industry executive has told AGBI.

Bitcoin’s price surged to $46,900 in early January ahead of the launch of bitcoin exchange-traded funds (ETFs) in the US, up from a two-year low of about $15,800 in November 2022. Its price had slipped to $39,140 on Tuesday.

Such gains should be positive for Iran’s bitcoin sector. Yet its global share of bitcoin mining has fallen to 3.1 percent, according to World Population Review, down from a 2021 estimate of 4.5 percent.

The sector’s difficulties began in 2019 when the government announced it would regulate and licence bitcoin miners. According to a Thomson Reuters 2022 report, Iran’s central bank permits banks and currency exchanges to buy and sell cryptocurrencies mined within the country.

Yet few beneficial reforms were implemented, said Omid Alavi, CEO and co-founder of Tehran’s crypto mining service KNTISS.

For example, the central bank does not buy miners’ bitcoin, despite reports to the contrary claiming the government was doing so to help circumvent US-led sanctions.

Licensed miners must pay a premium on standard electricity and gas tariffs, which are already expensive, Alavi explained.

That has pushed much of the industry underground, with few legal miners remaining despite around 300 licences being issued, said Alavi, who is also the former chairman of the Iran Blockchain Association.

“The (legal) mining industry is almost dying,” said Alavi.

As well as high running costs, miners also suffer regular electricity outages as a result of Iran’s creaking power grid. Around 13 percent of the country’s electricity is lost during transmission and distribution, according to the International Energy Agency.

“Government officials don’t understand emerging technologies such as bitcoin mining,” said Alavi. “Whenever we complain about high (energy) tariffs, they just quote the bitcoin price and tell us we must be doing well.

“They see bitcoin mining as a means to print money, which it isn’t. If the government managed the sector correctly, Iran could become a bitcoin mining hub, generate $1 billion in annual income and directly employ 20,000 people.”

At current energy tariffs, he estimates the break-even bitcoin price for licensed miners is around $100,000. Miners do not necessarily sell immediately and so are betting on making a profit should bitcoin’s price eventually reach six figures.

Electricity tariffs also change every three months, making business planning difficult, Alavi explained.

“When I speak with clandestine miners, they tell me I’m crazy to still be doing it legally,” he said. “With reasonable energy tariffs, foreign and domestic investment in bitcoin mining would soar – there’s a lot of interest in Iran, but not until running costs fall.”

Bitcoin mining requires dedicated hardware known as an application-specific integrated circuit that is specially designed for the task.

Unlicensed miners smuggle mining machines into Iran and operate them from home or from company premises – often businesses that already have high electricity consumption.

Licensed miners must halt mining during times of high electricity demand, usually in summer, said Ziya Sadr, a Tehran-based bitcoin expert and podcaster on the cryptocurrency.

“In Iran, miners are almost entirely mining bitcoin,” said Sadr.

Demand for bitcoin remains strong among Sadr’s tech-savvy compatriots; annual inflation in Iran is around 44 percent and the benchmark interest rate is 23 percent, so Iranians are reluctant to keep money in savings accounts where it is depreciating in purchasing power.

“They will buy anything that will protect the value of their wealth,” added Sadr. “In Iran, that includes cars, houses, dollars, gold and bitcoin.”