Power outages that have plagued Iran in the past month may have been caused by bitcoin farms run by foreign companies, according to France 24 and The Washington Post.
Bitcoin "farming" or "mining" is a way for people to earn the virtual currency Bitcoin without paying for it. "Farmers" are essentially getting paid to work as auditors, verifying the legitimacy of Bitcoin transactions in order to ensure that people aren't trying to "double-spend" Bitcoin currency, according to Investopedia. Double-spending is when someone makes a copy of a bitcoin and essentially attempts to spend the same bitcoin twice. Farming also creates new bitcoins for circulation.
In order to earn bitcoins, Bitcoin farmers also need to be the first find a 64-digit hexadecimal number, known as a "hash," that is less than or equal to a target hash, according to Investopedia. Finding these hashes takes a tremendous amount of computer power as it's essentially guesswork, but with the possible guesses numbering in the trillions for each problem.
The rewards for bitcoin mining are reduced by half every four years, with the current reward for one 1Mb block of transactions earning about 6.25 BTC. As of February 4, 2021, one bitcoin in shekels is about NIS 125,600 ($38,050) meaning that one block is worth about NIS 785,000 ($238,000). Bitcoin jumped as much as 14% on Friday to a two-week high after Tesla Inc chief Elon Musk tagged the cryptocurrency in his Twitter biography.
THE LARGE amount of computer power required for a bitcoin farm of thousands of computers and cooling systems requires a lot of energy, meaning that the most profitable bitcoin farms are located in countries where energy is cheap, like in Iran, according to France 24. For comparison, while electricity costs about NIS 0.53 ($0.16) per kilowatt per hour (with tax) in Israel, it only costs NIS 0.072 ($0.022) per kilowatt per hour in Iran – about a seventh as much.
Iranian officials claim that they charge ten times this rate to bitcoin farms, but statements made by Chinese companies operating in Iran say that Iranian authorities sell them electricity at NIS 0.087 ($0.027) per kilowatt per hour, only slightly above the normal rate.
At least 14 legal bitcoin farms operate in Iran, according to Iranian officials. These farms consume about 300 megawatts of electricity per hour, about the same as a town of at least 100,000 residents. It is unclear how many of these farms are owned by Chinese companies. According to France 24, independent experts estimate that the farms consume nearly 450 megawatts of electricity per hour.Chinese bitcoin farms are facing two main issues in Iran: the series of power outages and growing anti-Chinese sentiment among the population, as China is seen as an international supporter for the country's theocratic government, according to France 24.
ON JANUARY 11, a Chinese worker demonstrated the different steps needed to build a bitcoin farm in Iran, sparking outrage among Iranians. France 24's Observers team found that the video was actually filmed in 2017 on a bitcoin farm in Rafsanjan, in central Iran. While Iranian authorities stated that the farm was operating legally and only using a limited quantity of electricity, the company running the farm stated that the site uses 175 megawatts per hour, about what a city of 30,000 residents would use. Satellite imagery showed that the farm is located next to a power station.
After the video was released, Mohammad Moetevallizadeh, the CEO of the national electricity company Tavanir, stated that the farm would stop its activities for two weeks in light of the power outages.
In light of the outrage, Iranian media outlets reported on another Chinese bitcoin farm in Jolfa in northwestern Iran, although Afshin Milani, the regional director of Tavanir, stated that there was no such farm there, according to France 24. Despite the claims by Milani, the Observers team found an official document registering the Zino Kian Aras or "ZIKAS" bitcoin farm in Jolfa in 2019. The investors and director of the company are Chinese citizens.
There is reportedly no digital trace of the company and the farm doesn't show up on Google Maps or other map sites.
Another bitcoin farm called Mana Pardazesh Asia is also operating in northwestern Iran, the team found. An official licensing document from 2018 showed that all the investors were Chinese citizens. A Chinese company also constructed a power plant in the same area around the same time.
The Observers team also found a Turkish company operating a bitcoin farm in Iran in the industrial Semnan zone. The farm consumes around 18 megawatts of electricity per hour, about the same as 3,600 households. According to Coindesk, a digital currency news source, companies from the UAE are also planning on setting up shop in Iran.
THE IRANIAN bitcoin industry has denied the claims by Iranian officials that bitcoin farms were to blame for the power outages. Ziya Sadr, a cryptocurrency researcher in Tehran, told The Washington Post that "the miners have nothing to do with the blackouts. Mining is a very small percentage of the overall electricity capacity in Iran.”
"It is a known fact that mismanagement, the very terrible situation of the electricity grid in Iran and the outdated equipment of power plants in Iran can’t support the grid," added Sadr.
An Iranian businessman named Dariush told France 24 that he first heard about Chinese bitcoin investors in Iran during a wave of power outages in January 2020, and that only Chinese or Iranian investors with close links to the government or military could open bitcoin farms.
"It would be impossible for a regular person to have a bitcoin farm," Dariush told France 24. "You could try to register your license, of course, but even if it is accepted then it is illegal to import the machines used to farm cryptocurrency. So only people who have the police, customs officers and even the Guardians of the Revolution in their pockets can import these machines on the black market and run their firm legally. In other words, ordinary Iranian citizens don’t have this luxury, but the Chinese do."
"I tried to get a license for months but was never able to get it," he said. "The officials at the Ministry of Industry with whom I was in contact, 'kindly' told me to forget this idea if I didn’t want to have issues with the Guardians of the Revolution."
At least 1,620 illegal digital currency farms were dismantled in Iran in January, according to Coindesk. Illegal bitcoin farms are located all over the country, including in actual farms, according to The Washington Post. The government has offered a reward for information on such operations.
The cryptocurrency has been used by Iran to bypass US sanctions and avoid issues the country is facing with hard currency. Hamas has also used bitcoin to raise funds while avoiding international sanctions.Iranian government regulations on the bitcoin industry that were recently passed would limit the use of digital currencies for imports and exports with Iran's central bank as an intermediary. The regulations have not been applied in practice, Sadr told the Post, adding that bitcoin was "not a solution" for US sanctions. “Bitcoin is just a tool. The sanctions problem is a much bigger problem. It’s a much bigger block for people,” Sadr said.
Reuters contributed to this report.