Legal Crypto Mining in Iran: Getting Started

EghtesadOnline: The government's move in July to regulate cryptocurrency mining as a legal industrial activity has been broadly welcomed by miners, though they say minor adjustments in regulations would create room for miners to make significant contribution to the economy.

News ID: ۷۴۸۴۸۸

21 September 2019

The Ministry of Industries, Mining and Trade, the body in charge of authorizing crypto mining companies, has prepared a draft specifying details about authorized crypto mining in Iran.

As per the document, seen by the Financial Tribune, non-Iranian miners also can apply for operating permits from the ministry.

Permits will be valid for one year and crypto miners wanting to operate in free trade zones should apply to local authorities, Financial Tribune reported.

High Electricity Rates

Electricity rates in Iran are among the lowest in the world -- 0.7 cent kilowatt-hour. This partly led to the sudden surge in crypto mining farms across the country, even in small rural areas where the grids could not handle the heavy loads.

The Energy Ministry's concerns over possible power outage in summer and the indirect subsidies pumped into crypto mining, prompted the government to significantly increase electricity rates for cryptocurrency mining to 7 cents for one kilowatt-hour.

The price is the same for electricity export and applies to both Iranian and non-Iranian miners. Iran exports power to neighbors, namely Afghanistan, Iraq and Pakistan, and has power swap deals with Azerbaijan and Armenia.

Prospective miners are given two options regarding electricity use. They can either subscribe to the national electricity grid or use mini-grids. Those who want to build mini power plants should decide the location and subscribe to the national gas grid. The gas feedstock price for grids will be equal to 70% of natural gas export prices.

Hamed Salehi, a blockchain researcher, says the power rates are too high. "Power rates are significantly lower in some neighboring countries… and they also offer incentives to crypto miners."

He strongly supports the government's decision to recognize crypto mining as legal, stressing that crypto mining business is a high added value business and includes less known advantages.

"The national grid is under heavy load only in the summers. This means large volumes of power output remains unused in the non-summer seasons," he said, noting that mining crypto currencies could help raise the efficiency of power plants and augment their profit margins.

Moreover, a 1MW mining farm could create jobs for at least 16-17 people, Salehi was quoted as saying.

Investment Attraction

Elaborating on the rules, especially those concerning foreigners, will attract investments not only for crypto mining but also for development of renewable power, Salehi said.

However, the load of crypto mining on the national grid in summer seems to be the main sticking point. "The government can order miners to halt operations when the power grid is performing at its peak," he added.

Earlier this month, Paresar Power Plant, located in Gilan Province, announced that the plant has 200-300 MW excess output, which could be sold to crypto mining farms.

The ICT Ministry has also opposed the high rates. "We prefer a mechanism for selling unwanted output from power plants in a secondary market, where prices are the function of supply and demand," Amir Nazemi, deputy minister of ICT said earlier this month.

A deputy minister of industries says electricity rates can be lowered later when the legalization process is finalized. "Our first priority was to legalize the industry. Once this is over we can discuss the rates with the Energy Ministry," Saied Zarandi was quoted as saying.

Black Market Potential

Hamed Salehi also notes that by restricting the crypto mining business (mainly through high power rates), the government creates the conditions for a black market simply because "restrictive measures will not kill enthusiasm for the lucrative business."

"Miners will soon find new ways to link to the national grid illegally," he said. "Pushing the industry underground is not something the government would favor because it would hurt its revenue base."

"The regulatory framework now requires miners to use standard equipment. In the black market there would be no such need. Poor quality mining equipment can impose huge losses to the national grid."

Salehi called on policy and decision makers to consider the industry's potential added-value advantage. "We are ready to help.”