Bitcoin mining is one of the suspected causes of power outages disrupting life in Iran

Iran’s economy has been stalled for years international sanctions on its nuclear program in advance. The country’s fuel reserves have dwindled, with the government selling more to cover budget deficits wars are raging in the Middle East and Tehran faces mismanagement.

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Demand from the grid did not drop, however, even as Iranians stopped using air conditioners as the weather turned colder in the fall and before the start of the winter months, when people turn on their gas heaters.

Meanwhile, Bitcoin’s value hit record highs after the US election was endorsed by Donald Trump. It hit the $100,000 mark for the first time last week, just hours after the president-elect said he plans to nominate cryptocurrency proponent Paul Atkins to be the next president of the Securities and Exchange Commission.

The surge has led some to suspect that organized cryptocurrency mining — absorbing huge amounts of energy — played a role in the outages in Iran.

“Unfortunately, some opportunistic and exploitative individuals are using subsidized electricity, public networks and other resources to mine cryptocurrencies without authorization,” Mostafa Rajabi, CEO of Iran’s state-owned energy company, said in August.

Iran’s state energy company did not respond to a request for comment.

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Power outages have come and gone in the past in Iran, which is struggling with outdated equipment at many of its factories. Throughout the summer, sustained outages hit industrial parks near Tehran and other cities. Then, in October and November, power outages in Tehran’s neighborhoods became the norm during the day.

Climate change has been partly blamed, with persistent droughts and less water flowing through Iran’s hydroelectric dams.

Iran’s reformist president Masoud Pezeshkian ordered several power plants to stop burning fuel oil, a heavy, highly polluting fuel common in the countries of the former Soviet Union. Tehran has used it in the past to make up for the gap in electricity generation.

Fuel stocks, in both diesel and natural gas, also remain low, even though Iran is a OPEC member and home to one of the world’s the second largest natural gas reserves, after Russia. There was no explanation for the decision to keep those reserves low, although critics suggested Iran may have sold the fuel to cover budget shortfalls.

For his part, Pezeshkian said he needed to “tell the public honestly about the energy situation.”

“We have no choice but to consume energy economically, especially gas, in the current conditions and the cold weather,” he said in mid-November. “I myself use warm clothes at home; others can do the same.”

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However, winter heating is not yet in full swing in Tehran, raising questions about where the power is going.

In many poor and densely populated neighborhoods in the country, people have access to free, unmetered electricity. Mosques, schools, hospitals and other sites also receive free power.

And with electricity generally sold at subsidized rates, bitcoin processing centers have mushroomed. They need huge amounts of electricity to power specialized computers and keep them cool.

It is difficult to determine how much energy is consumed by mining, especially since miners now use virtual private networks that mask their location, said Masih Alavi, CEO of an Iranian government-licensed mining company called Viraminer.

Miners also rented apartments to hide their rigs inside empty houses. “They distribute their cars in several apartments to avoid detection,” Alavi said.

In 2021, one estimate suggested that Iran processed up to one billion dollars in bitcoin transactions. This value has likely increased given the rise of bitcoin. Meanwhile, the power outages in Iran began in earnest as bitcoin surged from around $67,000 to over $100,000 in its all-time rally.

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Rajabi, the CEO of the state electricity company, said his firm would offer $725 in rewards for people to report unlicensed bitcoin farms.

The farms have caused “an abnormal increase in consumption, outages and problems in power grids,” Rajabi said.

The amount of energy used by about 230,000 unlicensed devices is equivalent, he said, to the entire energy needs of Iran’s Markazi province – one of the country’s main production sites.

Iranian officials and media have not linked the bitcoin surge to the ongoing blackouts, but the public has, with social media users re-sharing a video showing a massive bitcoin farm discovered earlier this year in Iran. An off-camera voice asks how the power company didn’t discover the farm sooner.

The US Treasury and Israel targeted bitcoin wallets they alleged were affiliated with operations run by Iran’s paramilitary Revolutionary Guard to fund allied militant groups in Middle East war zones.

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That suggests the Guard itself – one of the most powerful forces in Iran – could be involved in mining.

Instead, Iranian media reports almost daily on individual mining operations that have been raided by police.

Iran may see bitcoin as a hedge against increased pressure from the incoming Trump administration and as regional allies are gripped by turmoil, said Richard Nephew, an adjunct fellow at the Washington Institute for Near East Policy.

“The question for economists in Iran is whether we have enough confidence in this to fund the government,” said Nephew, who has worked extensively on Iran issues and sanctions strategies in the US government.

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However, he cautioned against thinking of bitcoin as a magic bullet for Iran, especially since bitcoin wallets can be targeted in sanctions.

“A pattern of behavior screams out to the intelligence services,” Nephew said. “Shout out to bank compliance departments.”