Bitcoin centers blamed in Iran blackouts

TEHRAN, Iran — Iran’s capital and major cities plunged into darkness in recent weeks as rolling blackouts left millions without electricity for hours. Traffic lights died. Offices went dark. Online classes stopped.

With toxic smog blanketing Tehran skies and the country buckling under the pandemic and other mounting crises, social media has been rife with speculation. Soon, fingers pointed at an unlikely culprit: bitcoin.

Within days, as frustration spread among residents, the government opened a wide-ranging crackdown on bitcoin processing centers, which require immense amounts of electricity to power their specialized computers and to keep them cool — a burden on Iran’s power grid.

Authorities shuttered 1,600 centers across the country, including, for the first time, those legally authorized to operate. As the latest in a series of conflicting government moves, the clampdown stirred confusion in the cryptocurrency industry — and suspicion that bitcoin had become a useful scapegoat for the nation’s deeper-rooted problems.

Since former President Donald Trump unilaterally withdrew in 2018 from Tehran’s nuclear accord with world powers and reimposed sanctions on Iran, cryptocurrency has surged in popularity in the Islamic Republic.

For Iran, anonymous online transactions made in cryptocurrencies allow individuals and companies to bypass banking sanctions that have crippled the economy. Bitcoin offers an alternative to cash printed by sovereign governments and central banks — and in the case of Iran and other countries under sanctions like Venezuela, a more stable place to park money than the local currency.

“Iranians understand the value of such a borderless network much more than others because we can’t access any kind of global payment networks,” said Ziya Sadr, a bitcoin expert in Tehran. “Bitcoin shines here.”

On Tehran’s outskirts and across Iran’s south and northwest, windowless warehouses hum with heavy industrial machinery and rows of computers that crunch highly complex algorithms to verify transactions. The transactions, called blocks, are then added to a public record, known as the blockchain.

“Miners” adding a new block to the blockchain collect fees in bitcoin, a key advantage as the country’s currency collapses. Iran’s rial, which had been trading at 32,000 to the dollar at the time of the 2015 nuclear deal, has tumbled to around 240,000 to the dollar these days.

Although bitcoin mining strains the power grid, experts say it’s not the real reason behind Iran’s electricity failurs and dangerous air pollution. The telecommunications ministry estimates that bitcoin processing consumes less than 2% of Iran’s total energy production.

“Bitcoin was an easy victim here,” said Kaveh Madani, a former deputy head of Iran’s Department of Environment, adding that “decades of mismanagement” have left a growing gap between Iran’s energy supply and demand.

Bitcoin “mining’s energy footprint is not insignificant but these problems are not created overnight,” he said. “They simply need one trigger to spiral out of control.”