Bitcoin behind power outages – or is there more to the story?
In early January, the lights in Tehran went out. In the coming weeks, several of Iran’s largest cities were hit by recurring power outages.
Dissatisfaction was bubbling among the citizens, but the authorities knew what to do. Via the state news agency Irna, the Ministry of Energy announced that illegal bitcoin mining consumed 260 megawatts of hours a day and in a series of raids, more than 1,600 bitcoin centers in the country were closed. According to The Telegraph, the order came directly from President Hassan Rohani.
Bitcoin digging, or bitcoin mining, is the process by which new “coins” of the digital currency are created.
With 3.4 percent of global mining, Iran is the world’s sixth-leading bitcoin producer, according to the University of Cambridge. By far the largest is China with 65 percent. In between are states such as Russia, Kazakhstan, and Malaysia.
That mining is concentrated in precisely these countries is no coincidence, according to Erik Agrell, professor of electrical engineering at Chalmers.
“The energy should be cheap, preferably the cooling as well because it goes on the same electricity bill. This means that these data centers often end up in areas with cheap coal power, and these can be areas without strong environmental opinion” – Erik Agrell, Professor of Electrical Engineering
Bitcoin mining consumes electricity. According to Cambridge University, the annual energy consumption amounts to 127.7 terawatt-hours, which can be compared with Sweden’s total electricity consumption of 131.8 terawatt-hours.
New bitcoin is created when someone manages to crack the currency’s crypto puzzle. The algorithm adapts so that the puzzles become more advanced the more people break, which means that powerful and electricity-thirsty computers are required.
When bitcoin miners flocked to Iceland a few years ago, which can offer cheap geothermal energy, fears were raised that electricity would not be enough.
Has bitcoin actually become a scapegoat?
The link between darkened cities and bitcoin is not limited to Iran. In 2018, Venezuela was hit by extensive power outages, which according to Vice coincided with increased cryptocurrency mining.
In the Georgian breakaway republic of Abkhazia, electricity consumption rose by 20 percent in 2020, reports Reuters and the authorities have blamed bitcoin switches.
Electricity consumption is a reality. But has bitcoin actually become a scapegoat? A grateful excuse for states that have neglected to maintain power grids and secure energy supply?
“Bitcoin was an easy target.” – Kaveh Madani, former Deputy Environment Minister for Iran
In fact, Madani claims, “decades of mismanagement” were behind the power outages.
– The energy use of mining is not insignificant, but these problems are not created overnight. It only takes one triggering factor for it to escalate out of control.
The government has the extensive fuel riots in 2019 in fresh memory. But Bijan Khajehpour, a consultant at European Nexus Partners that offers advice to European companies looking to establish themselves in Iran, does not believe that power outages have the same explosive potential.
Regardless of who bears the blame, the derelict cities highlight a challenge whose timeliness will only increase.