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Cryptocurrency mining in Iran is set to get even bigger with the government giving the green light to power plants to mine cryptocurrencies such as Bitcoin (BTC). The news is the latest piece of positive development on the virtual currency mining front that has come out of the country over the past year.
Since legalizing cryptocurrency mining in July 2019, Iranian authorities have tried to ensure that market participants only operate after obtaining the required licenses. By allowing power plants to engage in cryptocurrency mining, Iran joins other emerging hubs as global “hash wars” pick up pace.
Iran has seen an influx of miners due to its cheap electricity, catapulting the country to be one of the most significant cryptocurrency nations outside of China. Meanwhile, major market players in North America have been expanding their operations with more inventory acquisitions in recent months.
Only licensed cryptocurrency mining
Iranian authorities have given the green light to power plants to mine cryptocurrency. However, the authorization comes with a warning, as power plant operators cannot use subsidized fuel. Therefore, Iranian power plants seeking to mine Bitcoin must obtain a license from the government and use the approved electricity tariffs determined by the authorities.
Not allowing power plants to use subsidized fuels is a measure taken by the government to ensure that such activities do not negatively impact the electricity supply to residents and other industrial sectors in the country. Babak Behboudi, co-founder of the digital asset trading platform SynchroBit Hybrid Exchange, told Cointelegraph that this news marks another milestone for legalized cryptocurrency mining in Iran:
“It is a great achievement as it indicated that the Iranian government has recognized the cryptocurrency mining industry as a fact! It means that cryptocurrency can be considered a legal and regulated resource whereby people can do something for the their business and for their lives “.
Iranian authorities point out that licensed cryptocurrency mining is not a new development. Indeed, in January, the country’s Ministry of Industry, Mines and Trade issued more than 1,000 licenses for cryptocurrency mining. Before legalization, some miners relocated their operations to mosques to enjoy free electricity, causing the government to crack down on spikes in energy consumption.
A compromise was soon found, with the government allowing cryptocurrency mining and even incentivizing more participants to move their operations into the country with the promise of tax exemptions. Iranian cryptocurrency miners who repatriate their foreign earnings to the country are eligible for some tax exemptions. As part of the campaign to allow only licensed cryptocurrency mining, the government has also offered rewards for whistleblowers who expose illegal cryptocurrency mining activities, with bounties of around 100 million rials ($ 2,375).
The Iranian government sets the agenda
In May, Iranian President Hassan Rouhani invited officials from the Central Bank of Iran, the Ministry of Energy, and the Ministry of Communications and Information Technology to develop a comprehensive national strategy for cryptocurrency mining. The move signaled a greater intention by the government to include cryptocurrency mining in its economic recovery plans. With the country facing hyperinflation and a struggling economy made even worse by the coronavirus outbreak, the Iranian government has increasingly examined the merits of greater involvement in the country’s crypto industry.
Along with Egypt, Kuwait and Myanmar, Iran has one of the lowest electricity tariffs in the world. Cheap electricity is often an incentive for miners with healthier profits. Outside of China, Iran controls the fifth largest share of Bitcoin’s global hash mining rate distribution. In fact, the rise in Iranian cryptocurrency mining activities in 2019 led to a slight decline in clean energy cryptocurrency mining.
In the third edition of its two-year Bitcoin mining report in June 2019, digital asset management company CoinShares revealed that global renewable energy penetration in the sector was 74.1%. In its latest research results published in December 2019, the percentage dropped slightly to 73%. Commenting on the possibility of Iran claiming an even greater share of the global Bitcoin mining market, Behboudi noted that it is too early to say for sure:
“To become a mining hub, the Iranian mining industry must have access to the latest mining technologies, especially advanced machinery, to improve energy efficiency and increase investor ROI. Furthermore, we need to see how the government wants to set the roadmap for this new industry. A key question is how the government wants to allow foreign companies and investors to participate in Iran’s cryptocurrency mining industry. “
Challenge the domination of China
Power plants in Iran that engage in cryptocurrency mining could increase the country’s Bitcoin mining footprint, resulting in a larger share of the global hash rate distribution. As of August 2019, Iran ranked ninth in the world for thermal power generation capacity, with a rapid increase of 9,000 megawatts over a six-year period.
The news also comes as participants at other major crypto mining hubs appear to be ramping up their operations. Major North American miners like Bitfarms and Marathon have placed sizable orders for mining rigs from major manufacturers like MicroBT and Bitmain in recent months.
These new inventories contain the latest iterations of mining hardware touted as being capable of delivering far greater levels of productivity than the older generation of platforms. Highly efficient crypto mining is even more concerning in the current climate, especially after the Bitcoin block reward halving in May.
In Kyrgyzstan, Bitcoin mining appears to attract government interest. In early August, the country’s Ministry of Economy released a draft plan to impose a 15% tax rate on Bitcoin miners for public discussion. The move is part of the government’s efforts to spur economic recovery during the current COVID-19 pandemic.
For Bitcoin permabulls, countries like Iran will try to compete with the US in a hash war. According to crypto bull Max Keizer, this fight will catapult Bitcoin to a market price of $ 500,000. The migration of hash power from “East to West” could cause a significant decrease in the dominance of the hash rate of Bitcoin mining in China. Western miners who move away from Europe’s high operating costs could relocate to North America, where the United States is emerging as a viable option due to developments in regulation by a number of states.
COVID-19 and Bitcoin halving
For now, China still dominates the sector, controlling 65% of the hash rate. With the monsoon season underway in China, experts expect miners to see even greater profitability as electricity becomes plentiful.
In 2020, the industry was forced to withstand multiple storms, including the COVID-19 pandemic, which affected the supply of hardware to miners. Following Bitcoin’s halving, BTC’s spot market price also failed to see any upward momentum, forcing smaller mining operations to close. Thomas Heller, global business director at Bitcoin mining pool operator F2Pool, revealed the effects of the halving to Cointelegraph:
“Daily mining revenue fell from ~ $ 0.16 per TH / s before halving to $ 0.07 in July and is now around $ 0.10. Profit margins are much thinner and many older generation machines have been shut down, with the exception of those taking advantage of the cheap Hydro Season energy prices in China. “
Whit Gibbs, CEO of cryptocurrency mining company Hashr8, echoed similar sentiments, telling Cointelegraph that the post-halving was brutal: “Obviously every time you halve the block reward it directly impacts the profits of a miner “. He continued: “Add to that the fact that despite months of lateral price action there has also been a steady increase in difficulties, it has not been a pleasant few months for Bitcoin miners.” According to Heller, range-limited lateral accumulation also played an important role:
“Due to the BTC price, the demand for new generation machines was much lower than 12 months earlier. Some companies in the US and overseas have placed very large orders from MicroBT and Bitmain, however, we do not expect huge increases in network hashrate due to the slowdown in sales. “
