Bitcoin mining in Iran: Generating jobs, evading sanctions

Iran is bypassing international sanctions through bitcoin mining, providing employment opportunities and revenues which can be transformed into American dollars. However, the proliferation of energy-intensive illegal activity is causing heavy losses to the electricity sector.

Parsa Azizi (not his real name) has worked in bitcoin mining since 2019 when he lost his clothes manufacturing business in Tehran. "I learnt about it through a friend and the state of the economy pushed me to try it," he says.

In essence, bitcoin mining is a process whereby powerful computers compete to document transactions (by users on the encrypted digital currency network) via solving complex mathematical problems. After verifying one megabyte's worth of bitcoin transactions, the miner earns one bitcoin, says digital specialist Muhammad Bahrami, a senior adviser at Pioneers IT company.

"Iran is bypassing international sanctions through bitcoin mining, providing employment opportunities and revenues which can be transformed into American dollars"

"Mining is done through programming code to crack difficult encryptions. This is done by computers that verify 'chains' of payments, adding these transactions to a 'blockchain' (a secure online database)," he told Al-Araby Al-Jadeed, The New Arab's Arabic-language sister publication. "Those doing this are rewarded with bitcoin currency, and the size of the payment is invariably linked to the number of computers and how powerful they are".

In addition to computers, the operation requires internet access and electricity, says Bahrami, who says miners used to use ordinary computers. Today, however, investors use specialised equipment which consumes less energy and mines at a faster rate.

Around 18,749,318.7 bitcoins had been mined by 8 July 2021, leaving 2,250,681.3 unmined. Bahrami says the system was extremely lucrative in the beginning around 10 years ago, but the increasing numbers of miners and the steady decline in unmined bitcoin, which drops around every 10 minutes - the time needed to produce 6.25 bitcoin - has led to decreasing profits for investors.

How does licensing for bitcoin work?

Iran's authorities officially recognised cryptocurrencies in 2019. They later established a licensing system whereby miners paid higher electricity fees, with bitcoins then being sold to the Central Bank of Iran. Miners need to obtain a permit from the Ministry of Industry, Mines and Trade, which is free, but on the condition that they own a workspace with an electricity surplus of over 100 kWh.

Hamid Reza Ebrahimi, a legal adviser to the Iranian judiciary, says it is illegal to mine without a permit, however, the law does not stipulate clear punishment for violators except the confiscation of their equipment, saying. "This issue is recent and hasn't been subjected to clear regulation - there are only scattered internal decisions, issued by bodies like the Ministry of Economic Affairs and the Central Bank," he says.

He says the government has largely turned a blind eye to illicit mining, which he attributes to the ailing state of the economy and rising unemployment. However, after the electricity crisis last June "it began clamping down harder, confiscating unlicensed mining equipment which had been smuggled in".

"Iran's authorities officially recognised cryptocurrencies in 2019. They later established a licensing system whereby miners paid higher electricity fees, with bitcoins then being sold to the Central Bank of Iran"

Iran's customs administration forbade the import of mining equipment prior to July 2019 due to concerns over smuggling. After July, however, it allowed the import as long as the investor had a permit. Ebrahimi says that in accordance with an Iranian cabinet decision on 31 July 2019, buying and selling bitcoin, keeping it and importing mining equipment are not considered crimes.

However if imports are prohibited according to the customs administration, or they've been smuggled, or the equipment is used for other activities like digital sabotage, the violator will be dealt with under Article 687 of the penal code which targets illegal beneficiaries of water, electricity, and gas. This can result in a 3-10 year prison sentence, although so far the authorities have not applied this to miners.

Bypassing sanctions

Bitcoin mining is also being managed by Iranian institutions in huge centres with vast amounts of equipment, in an effort to bypass American sanctions, says Iraj Yusufi, director of the Public Department for Modern Online Banking Services (a government body). He indicates that bitcoin production in Iran ranges from 4.5 percent to 8 percent.

This is confirmed by data from Elliptic (a company specialising in blockchain analytics) and the digital assets website BitOoda. However, according to the Cambridge Bitcoin Electricity Consumption Index, the rate reaches 10 percent. Their website states: "Iran comes third globally in mining bitcoin, with annual revenue estimated at a $1 bn and estimates indicating that close to 20,000 bitcoins are being mined annually".

He adds that many Iranian companies import goods using digital currencies - primarily bitcoin - due to the restrictions on Iran's banking sector and American sanctions, drawing attention to the fact that "cryptocurrency transactions are difficult for the US to monitor and control".

Electricity is relatively cheap in Iran, and this makes bitcoin mining an attractive prospect, explains Bahrami, saying that the average household fee for 1 kWh of electricity is 80 tomans ($.005), and for industrial consumption 300 tomans (1.25 cents). Despite this, Bahrami confirms that many Iranians steal electricity in order to mine.

"Many Iranian companies import goods using digital currencies - primarily bitcoin - due to the restrictions on Iran's banking sector and American sanctions"

In the course of this investigation, ten bitcoin miners were interviewed, only one of whom had a permit. Nine used stolen electricity by using cables that bypassed energy metres or by cable hooking – stretching long cables from inside the home to tap into a powerline.

Electricity theft costs the Iranian economy 20 bn tomans ($833 mn) annually, according to Bahrami, who says that the government has set electricity costs for miners more than three times higher than for industrial consumption, with1 kWh costing 1,000 tomans (4.15 cents).

Combatting unemployment

Mining activity has increased due to the economic hardship the country has faced over the past decade due to the escalating conflict with the West over the nuclear issue, and the American, international, and European sanctions which have resulted, according to Yusufi.

"Unemployment among young people is between 15 and 24 is 23.7 percent," he says, indicating that between 600,000 and 700,000 young people enter the labour market annually, while available work opportunities are dwindling. He says that according to a study done by Elia, a business consultancy firm, 12 million Iranians are investing their money in digital currencies.

The monthly income of the miners interviewed ranges from $100 to $1,000. Three were unemployed before mining, while the others were employed but their income didn’t cover their basic expenses.

"The current situation in Iran pushes many unemployed graduates into this work," says bitcoin miner Talib Khalilzadeh (not his real name), who has a PhD in physics. "Many ask me why I'm working in this when I have a PhD. My response? Because we live in Iran". He doesn’t view mining as a long-term job, but as a passing opportunity that should be seized.

"Many ask me why I'm working in this when I have a PhD. My response? Because we live in Iran"

Zahid Drudi (not his real name), another miner, emphasises that the simplicity of the work attracts many people to it – the miner's role is limited to maintaining the equipment which operates around the clock.

"Miners just ensure the devices are working uninterruptedly every day and if something breaks down they fix it or call in technicians to fix it," he says, adding, "you earn more than in more physically demanding jobs and there is no need for specialisation or experience".

This is an edited translation from our Arabic edition. To read the original article click here.

Translated by Rose Chacko