Iran’s Ban On Bitcoin Mining Is Supposed To Stop Electricity Blackouts – It Will Do The Opposite

Iran’s Ban On Bitcoin Mining Is Supposed To Stop Electricity Blackouts – It Will Do The Opposite

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A revolutionary land

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For the second time this year, the Islamic Republic of Iran has banned the mining of bitcoin and other cryptocurrencies in an attempt to ease pressure on its crumbling energy infrastructure.

Bitcoin miners deploy power-hungry computer hardware in a race to randomly discover – or mine – a specific string of numbers that the network needs in order to create new blocks of data. The prize for wading through trillions of wrong guesses is newly minted bitcoin; the cost is the electricity needed to keep the machines chugging away.

Tehran is not ideologically opposed to the activity: the Ministry of Industries, Mining and Trade has issued more than 1,000 licenses to crypto mining farms, viewing them as a potentially lucrative source of income.

However, after decades of U.S. sanctions, Iran’s infrastructure is suffering from chronic under-investment.

Blackouts were a regular occurrence over the summer as Iranians cranked up their air conditioners, prompting president Hassan Rouhani to announce a four-month ban on crypto mining. With winter now taking hold and heating appliances being fired up across the country, the government has once again been forced to act.

Mostafa Rajabi Mashhadi, director of the state-run Iran Grid Management Corporation, told state TV that the latest ban – effective until March – should free up 209 megawatts of power for Iranian households.

The Islamic Republic will also clamp down on unlicensed miners, he said, who are believed to consume three times as much energy as their law-abiding counterparts. Other, more traditional energy-saving measures – such as switching off street lights and curbing office consumption – are on the cards as well.

Taken at face value, it’s hard to fault the government for targeting non-essential consumption like bitcoin mining.

However, beyond slightly reducing demand for a short period, the measure will do nothing to address structural problems with Iran’s creaking energy network. To the contrary, it will only deter investment by one of the few sectors that is ready and willing – with or without sanctions – to bring an end to blackouts by helping the country transition towards reliable, sustainable and cost-effective renewable energy.

Iran has made no secret of its desire to go green.

The country generated 98% of its energy from natural gas and oil in 2019, according to data collected by the International Energy Agency (IEA).

In October, the Ministry of Energy, Renewable Energy and Energy Efficiency Organization (SATBA) tried to reduce its dependence on fossil fuels by inviting the private sector to help develop and build renewable power plants with a total capacity of 10,000 megawatts.

But the problem facing Iran – besides the ever-present threat of sanctions enforcement – is that achieving this goal requires foreign expertise, heavy capital expenditure and a willingness to accept short-term financial uncertainty. That’s because building power plants is only part of the solution. A bigger challenge is transmitting electricity from the remote regions where renewable energy is typically sourced to every village, town and city in the vast country.

Whenever that’s not feasible with existing infrastructure – and whenever temporary lulls in demand create a surplus of generating capacity – Iran will fall victim to the “stranded power problem” described by Alex Gladstein, chief strategy officer at the Human Rights Foundation, in a recent essay for Bitcoin Magazine.

“In order for their economies to grow, they have to expand their electrical infrastructure,” he said of the challenges facing developing nations around the world. “But when they … build power plants to try and capture renewable energy in remote places, that power often has nowhere to go.”

One solution is the very activity that Iran has now grudgingly banned. “Bitcoin could be an incentives game-changer,” Gladstein explained. “New power plants, no matter how remote, can generate immediate revenue, even with no transmission lines, by directing their energy to the bitcoin network and turning sunlight, water or wind into money … With bitcoin, any excess energy can be directed to mining until the communities around the plant catch up.”

Put another way, Iran can mitigate the financial and logistical hurdles of a green revolution by simply buying some mining machines and switching them on whenever its new power plants have energy to spare.

This would guarantee a steady return on investment regardless of local conditions. What’s more, the bitcoins minted by the mining farms could be immediately sold for U.S. dollars, digital gold or any other hard asset that the government wants in its reserves. There’s no need to hold any cryptocurrency for longer than the split second it takes to sell it.

Iran isn’t the only country that would benefit from adopting such an approach.

In East Africa, a lobby group called Project Mano is encouraging Ethiopia’s government to mine bitcoin with the surplus energy it already generates across its mature network of hydroelectric, wind and solar power plants. In El Salvador, president Nayib Bukele has committed to large-scale bitcoin mining using geothermal energy from volcanoes.

As usual, developed nations have a head start. In America, private enterprises across the country – from New York to Montana to Texas – are already capitalizing on the ease and financial stability of mining bitcoin with green energy.

The difference for Iran, of course, is that it needs funding and partners to build its renewable infrastructure from scratch.

Bitcoin miners will be an ally – not a foe – in that journey.

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