On Wednesday, April 25, Iranian President Hassan Rouhani announced a nationwide ban on cryptocurrency mining. The ban, launched in response to energy shortages, is set to take effect immediately and last for four months, expiring on September 22, 2021.
Iran has been under heavy pressure from the international community since 2018, when U.S. President Donald Trump restored sanctions that had previously been lifted under the 2015 Iran nuclear deal. Over the following two years, the Trump administration piled on additional sanctions, costing Iran an estimated $150 billion and cratering the value of the Iranian riyal. Although the Biden administration has engaged with Iranian nuclear negotiators in Vienna, the Trump-era sanctions have so far remained intact.
In spite of outside pressure from the United States and Europe, Iran enjoys several economic advantages that other countries do not. In addition to the Islamic Republic’s substantial oil reserves, it has the world’s second-largest supply of natural gas, making electricity production from gas power plants fairly easy. This has meant that Iran has the fourth-cheapest electricity rate in the world, making Bitcoin mining – an enormous consumer of electricity – a uniquely profitable industry.
The result of this has been good for a cash-strapped Iran. An estimated five percent of the world’s cryptocurrency tokens are mined in Iran, giving the ruling regime a badly needed lifeline from sanctions. While many of the miners have been private citizens, Iran has issued permits for mining, although they have been mostly ignored; in the speech announcing the ban, Rouhani estimated that 85% of all coins mined in Iran were mined illegally.
So what has changed?
Primarily, temperatures have spiked in recent weeks, leading to additional demand for electricity as Iranian households have begun to use their AC units over the summer. A prolonged drought in Iran has also led many of the nation’s hydroelectric plants – another source of power – to operate at a significantly reduced capacity.
And the fallout from economic sanctions on Iran’s oil and gas industry has led to difficulties maintaining a natural gas supply, despite Iran’s tremendous wealth in the resource. A shortage of natural gas has led the country to resume electricity production by inefficiently burning oil, with negative environmental consequences.
Iran’s move comes after China enacted a similar ban earlier in May. A month prior, Turkey banned the use of cryptocurrencies, claiming that they were prone to fraud.
This, together with Tesla CEO Elon Musk’s criticism of Bitcoin’s environmental record and questionable investment practices from internet traders, has led the price of Bitcoin to steeply decline since mid-April, losing one-third of its value amid a larger decline in cryptocurrency.
Trevor Filseth is a news reporter and writer for the National Interest.