Bitcoin craze hits Iran as US sanctions squeeze weak economy

|     Jon Gambrell & Amir Vahdat     |

TEHRAN, Iran (AP) – Iranians feeling the squeeze from United States (US) sanctions targetting the Islamic Republic’s economy are increasingly turning to such digital currencies as Bitcoin to make money, prompting alarm in and out of the country.

In Iran, some government officials worry that the energy-hungry process of “mining” Bitcoin is abusing Iran’s system of subsidised electricity; in the US, some observers have warned that cryptocurrencies could be used to bypass the Trump administration’s sanctions targetting Iran over its unravelling nuclear deal with world powers.

The Bitcoin craze has made the front pages of Iranian newspapers and has been discussed by some of the country’s top ayatollahs, and there have been televised police raids on hidden computer farms set up to bring in money by “mining” the currency.

Like other digital currencies, Bitcoin is an alternative to money printed by sovereign governments around the world. Unlike those bills, however, cryptocurrencies are not controlled by a central bank. Bitcoin and other digital currencies like it trade globally in highly speculative markets without any backing from a physical entity.

As a result, computers around the world “mine” the data, meaning they use highly complex algorithms to verify transactions. The verified transactions, called blocks, are then added to a public record, known as the blockchain. Any time “miners” add a new block to the blockchain, they are rewarded with a payment in bitcoins.

Boxes of machinery used in Bitcoin ‘mining’ operations that were confiscated by police in Nazarabad, Iran. – AP

To work, the expensive specialised computers require a lot of electricity to power their processors and to keep them cool. In Iran, “miners” have an edge because electricity is cheap thanks to longtime government subsidies. “Miners” also buy cheaper Chinese ready-made computers to do the work.

But the constant raids and authorities’ conflicting statements on the issue have Bitcoin “miners” in Iran incredibly leery of being identified. Those contacted by The Associated Press refused to speak about their work or to say how much they earn from their “mining”.

But they acknowledge they do this to make some money at a time when Iran’s currency, the rial, tumbled from 32,000 rials to USD1 at the time of the 2015 nuclear deal, to around 120,000 rials to USD1 now.

“It is clear that here has turned into a heaven for ‘miners’,” Iran’s Minister for Information and Communications Technology Mohammad Javad Azari Jahromi, recently told AP in an interview. “The business of ‘mining’ is not forbidden in law but the government and the Central Bank have ordered the Customs Bureau to ban the import of (mining machines) until new regulations are introduced.”

Ali Bakhshi, the head of the Iran Electrical Industry Syndicate, said earlier this month that the country’s Energy Ministry likely would boost costs for Bitcoin “miners” to seven cents for each kilowatt of electricity they consume, a massive increase from the current half-cent but still almost half the cost of electricity in the US, according to the semi-official Fars news agency.

Still, there are concerns, especially among Iran’s religious leaders, that people might try to circumvent paying extra for the electricity as well as using digital currency to hide or move money illicitly.