Bitcoin bases blamed in Iranian blackouts

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Vehicles travel on an unlit street during this week’s blackout in Tehran as Iran suffers a series of power failures. (AP / Ebrahim Noroozi)

TEHRAN, Iran – Iran’s capital and major cities plummeted into the dark in recent weeks as rolling blackouts left millions without electricity for hours. Traffic lights died. The offices went dark. Online classes ceased.

With toxic smoke in Tehran’s air blankets and the country bubbling under the pandemic and other mounting crises, social media has been rife with speculation. Soon, fingers pointed to an unlikely culprit: bitcoin.

Within days, as frustration spread among residents, the government opened a wide-ranging analysis of bitcoin processing centers, which requires large amounts of electricity to power their specialized computers and keep them cool – a burden on Iran’s power grid.

Authorities closed 1,600 centers nationwide, including, for the first time, those with legal authority to operate. As the latest in a series of contradictory government moves, the conflict has created confusion in the cryptocurrency industry – and doubts that bitcoin has become a useful scapegoat for the nation’s deeper-rooted problems.

Since former President Donald Trump unilaterally withdrew in 2018 from Tehran’s nuclear agreement with world powers and re-imposed sanctions on Iran, cryptocurrency has increased in popularity in the Islamic Republic.

For Iran, anonymous online transactions made in cryptocurrencies allow individuals and companies to avoid banking sanctions that have engulfed the economy. Bitcoin offers an alternative to cash printed by sovereign governments and central banks – and in the case of Iran and other sanctioned countries like Venezuela, a more stable place to park money than the local currency.

“Iranians understand the value of such an unlimited network far more than others because we cannot access any kind of global payment networks,” said Ziya Sadr, a bitcoin expert in Tehran. “Bitcoin shines here.”

On the outskirts of Tehran and across south and northwest Iran, windowless warehouses are hum with heavy industrial machines and rows of computers that squeeze highly complex algorithms to verify transactions. The transactions, called blocks, are then added to a public record, called the blockchain.

“Miners” who add a new block to the blockchain collect fees in bitcoin, a key advantage as the country’s currency collapses. Iran’s rule, which had been trading at 32,000 to the dollar at the time of the 2015 nuclear agreement, has shrunk to around 240,000 to the dollar these days.

While bitcoin mining is straining the power grid, experts say that’s not the real reason behind Iran’s electricity failures and dangerous air pollution. The telecommunications ministry estimates that bitcoin processing consumes less than 2% of Iran’s total energy production.

“Bitcoin was an easy victim here,” said Kaveh Madani, former deputy head of Iran’s Department of the Environment, adding that “decades of mismanagement” have left a growing gap between Iran’s energy supply and demand.

Bitcoin “the energy footprint of mining is insignificant but these problems are not created overnight,” he said. “They just need one spark to spiral out of control.”

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Air pollution plagues mountains in Tehran, Iran, December 23, 2020. Iran’s capital and its major cities have been plunged into darkness as rolling cuts in recent weeks have left millions without electricity for hours. With toxic smog covering the skies in Tehran and the country bubbling under the stress of the pandemic and sanctions targeting Iran’s oil and gas industry, speculation about the flow of blackouts took hold on social media. Soon, fingers pointed to an unlikely culprit: Bitcoin. (Photo AP / Ebrahim Noroozi)

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