Iranian authorities are blaming power outages and worsening air pollution in cities across the country on the energy drain caused by bitcoin mining operations.

The cryptocurrency farms are a huge energy drain because they use banks of high-powered computers to try to unlock complex numerical puzzles related to international financial transactions.

When successful, bitcoin miners create units of so-called digital coins that can be traded globally without the scrutiny and restrictions of traditional financial markets.

Circumventing Sanctions

In August 2019, facing strangling U.S. economic sanctions, Iran eased its restrictions on cryptocurrencies in an attempt to break economic isolation by circumventing the traditional financial markets Tehran has been blocked from using.

Proposed by Iran’s central bank and Energy Ministry, the legislation allowed bitcoins “legally” mined in Iran to be used for financing imports from other countries.

The law allowed a limited amount of Iran’s cheap subsidized energy to be used by authorized cryptocurrency miners. Power-sucking bitcoin operations became cheaper in Iran than other countries.

Now, Iranian authorities admit that thousands of “illegal” cryptocurrency farms also have sprouted up across the country.

The proliferation has been bolstered by the skyrocketing prices of bitcoin during a pandemic that has seen global investors flock to cryptocurrencies with money pulled out of stocks and commodities.

Mahmud Vaezi, the head of Iranian President Hassan Rohani’s office, has responded to allegations of government involvement in illegal bitcoin operations by saying there has been “pressure to regulate it some way.”

To be sure, that pressure has increased in recent weeks as cities across Iran have been blanketed by unprecedented smog and increasingly hit by power outages -- including blackouts in Tehran and large parts of major cities like Mashhad and Tabriz.

Alireza Kashi, spokesman for the Mashhad Electricity Distribution Company, says those managing the power grid have had no alternative to the electricity cuts because “if these intermittent outages do not occur, we will face widespread power outages.”

Winter Freeze

Meanwhile, winter temperatures have led to a surge of domestic gas consumption for home heating in Iran.

According to the semiofficial Iranian Students’ News Agency, that has caused natural-gas shortages and forced power plants to burn low-grade fuels in order to generate the electricity that keeps the bitcoin mines and the rest of the economy running.

Combined with increased automobile traffic due to the closure of mass transit systems aimed at slowing the spread of the coronavirus, residents of Iranian cities are now subjected to a visible rise in air pollution.

Health officials warn the increased pollutants are causing respiratory illnesses that complicate the symptoms of those fighting COVID-19 and increase the death rate.

In fact, Iranian officials first announced the country's power grid was struggling from a cryptocurrency surge during the summer of 2019 -- before Tehran lifted its restrictions on bitcoin farming and transactions.

In June 2019, Energy Ministry spokesman Mostafa Rajabi announced an “unusual” spike in electricity consumption from illicit bitcoin operations that were making the power grid “unstable” and causing problems for consumers.

State-controlled television that summer reported a crackdown on two cryptocurrency mines in the central Yazd Province.

Located in abandoned factories, authorities said they were each operating more than 1,000 bitcoin machines.

Iran’s deputy energy minister warned that same month that the number of cryptocurrency operations was increasing, with some being based in "schools and mosques" that receive electricity for free.

Now, faced with a growing public outcry over the smog and power outages, Iranian officials are being forced to expand their crackdowns.

On January 12, Energy Minister Reza Ardakanian said Chinese bitcoin mines would be allowed to continue as long as they extracted cryptocurrencies in accordance with a legal license.

A video then went viral on social media showing thousands of bitcoin machines being operated as part of a licensed Iranian-Chinese cryptocurrency farm in the southeastern city of Rafsanjan.

Iranian state media reported that the bitcoin mining farm had been using 175 megawatt-hours (MWh) of electricity -- nearly one-third of the total amount of electricity allotted for all cryptocurrency operations in the country.

On January 14, Iran’s state-owned Tanavir electricity firm announced the temporary closure of the Iranian-Chinese bitcoin operation.

Rajab Mashhadi, a spokesman for Iran’s electricity industry union, said on January 14 that a total of 1,620 illegal cryptocurrency firms that consumed around 250 MWh of electricity also have been deactivated.

But with many more “unauthorized” bitcoin extraction centers continuing to operate across the country, as well as operations authorized by the Energy Ministry, it’s unclear how much longer residents of Iranian cities will have to endure the smog and cryptocurrency power outages.