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Bitcoins, Vast Computer Networks, Cheap Electricity And Chinese In Iran

Iranian minister of communications Mohammad Javad Jahromi in Beijing, July 4 2019.

Controversy over operating vast computer networks using subsidized cheap electricity in Iran to mine bitcoins shows no sign of abetting.

In recent days, government officials began talking about the existence of ventures in various parts of the country, where unidentified people set up hundreds or perhaps thousands of computers in old warehouses or factory buildings to crack codes that would “mine” digital currencies for them.

Apparently, digital currencies can be obtained if certain super-complex codes can be broken – a feat possible by using huge computer networks. The problem is that a lot of electricity is needed and if an investor uses too much energy at regular prices, the payoff might be worth it.

But in Iran electricity is extremely cheap partly due to government subsidies and certain people, including apparently Chinese are involved in the bitcoin “mining” ventures.

Another reason for cheap electricity is the devaluation of Iran’s currency against major world currencies. The Iranian rial has lost its value fourfold against the U.S. Dollar in the last 18 months, mainly due to U.S. sanctions, while electricity prices have remained constant. Therefore, any economic activity heavily dependent on fossil fuels or electricity in Iran that can generate incomes in hard currency can be very profitable.

But the government is facing an unprecedented financial crunch due to backbreaking U.S. sanctions and suddenly the digital mining issue has been brought to the foreground.

The minister of communications has praised the currency mining initiative, but the government says such operations need to be licensed and pay taxes. In other words, the government wants its share of profits.

On Saturday July 6, reports in Iranian media indicated the government shutting down the digital farms and demanding that investors to come forward and apply for licenses.

In the city of Roodbar a prosecutor has said that he is building cases against bitcoin mining operations, on the grounds of abusing electricity use and keeping “illegal merchandise”.

Minister of communications and technology Mohammad Javad Jahromi, who was visiting China this week, said that if electricity is used in non-peak hours, the government can agree with these operations and issue licenses, but now digital mining operations have moved from China to Iran to take advantage of cheap electricity.

He insisted that the Chinese government is not involved, but China’s private sector is interested.

Jahromi also reassured the public that using cheap energy by miners is not a crime and it can be considered as similar to “exporting electricity”, which Iran does. But the issue is these operations have to become legal by obtaining permits.

Reports from Iran say that computers used for this purpose are special machines and their networking also needs a lot of equipment, some of which is in fact illegal to import into the country. But somehow not only shadowy operators have obtained the machines, but even in some government institutions the networks exist.

These kinds of references in Iranian media are often cryptic and vague, but they point at the tip of possible icebergs beneath the surface of what is revealed in the media.