Iran's Bitcoin Approach Faltering
In the heart of the Middle East, the state of Bitcoin in Iran has been an intriguing spectacle to observe. With its potential to break free from financial sanctions, Bitcoin has found a significant role in the country's economy, despite initial legal restrictions.
Initially, Bitcoin was legal in Iran, but its use as payment was banned. However, the landscape has evolved, and Bitcoin mining has emerged as a prominent activity, contributing to capital flight from the country. This shift has raised concerns about the government's control over the economy, as the Revolutionary Guard's activities seem to be loosening the government's grip.
State institutions and organisations are predominantly involved in the control and operation of Bitcoin mining farms in Iran. The activities are often monitored and regulated by the Iranian government and energy supply companies. However, the Revolutionary Guard, acting as a sort of "cartel," has been redirecting state resources for personal profit, exacerbating existing power supply bottlenecks in the process.
The Revolutionary Guard's relationship with the government has become increasingly parasitic rather than symbiotic. This cartel, controlling approximately 100,000 of Iran's 180,000 mining machines, has been a significant factor in the 450% increase in Bitcoin mining since 2018. As a result, an estimated $4.18 billion worth of cryptocurrencies had left Iran by 2024, a 70-percent increase from the previous year.
The energy-intensive nature of Bitcoin mining has put a strain on Iran's power supply. While Bitcoin mining consumes around two gigawatts, the country faces a deficit of up to 25 gigawatts. This strain is evident in the daily power outages affecting businesses, factories, and households, with poorer suburbs of Tehran being the most affected.
The rising costs and frequent blackouts have led to protests, particularly among bakers whose businesses are severely impacted. Despite this, the Revolutionary Guard has intervened to prevent the Energy Ministry from shutting down illegal mining farms, even using firearms in one instance.
The Iranian government claims to generate 85 gigawatts of power, but its capacity is only 64 gigawatts. Furthermore, many power plants included in official statistics have long since stopped operating, and the government is unable to meet new capacity goals, while consumption continues to rise. Adding to the woes, around 12.5 gigawatts of power supply are lost due to drought in Iran.
In an attempt to regulate the situation, the regime issued licenses for over 10,000 mining farms and allowed around 90 crypto exchanges to operate in 2022. However, the question remains whether these measures will be enough to address the challenges posed by Bitcoin mining in Iran, or if they will further exacerbate the existing issues of capital flight and power strain.
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