Iran using cryptocurrency mining to swerve around US sanctions

Bitcoin mining earns Iran hundreds of millions of dollars in cryptocurrencies which can be used to buy imports and decrease the impact of sanctions, a new study has found.

Iran's Bitcoin production - which is 4.5 per cent of the world's total - would amount to revenues close $1 billion a year, according to figures from blockchain analytics firm Elliptic.

The US has imposed an almost total economic embargo on Iran, including a ban on all imports from the country's oil, banking and shipping sectors.

While exact figures are "very challenging to determine", Elliptic estimates are based on data collected on Bitcoin miners by the Cambridge Centre for Alternative Finance up to April 2020 and statements from Iran's state-controlled power generation company in January, which showed that up to 600 megawatts of electricity was being consumed by miners.

Bitcoin and other cryptocurrencies are created through a process known as mining, where powerful computers compete with each other to solve complex mathematical problems. The process is energy intensive, often relying on electricity generated by fossil fuels, of which Iran has a rich supply.

The country's central bank prohibits the trade of Bitcoin and other cryptocurrencies mined overseas, although the currencies are widely available on the black market, according to local media reports.

Iran officially recognised crypto mining as an industry in recent years, offering cheap power and requiring miners to sell their mined Bitcoins to the central bank.

The prospect of cheap power has attracted more miners, particularly from China, to the country. Tehran allows cryptocurrencies mined in Iran to pay for imports of authorised goods.

"Iran has recognised that Bitcoin mining represents an attractive opportunity for a sanctions-hit economy suffering from a shortage of hard cash but with a surplus of oil and natural gas," the study found.

The electricity being used by miners in Iran would require the equivalent of around 10 million barrels of crude oil each year to generate, around 4 per cent of total Iranian oil exports in 2020, according to the study.

"The Iranian state is therefore effectively selling its energy reserves on the global markets, using the Bitcoin mining process to bypass trade embargoes," the study said.

"Iran-based miners are paid directly in Bitcoin, which can then be used to pay for imports – allowing sanctions on payments through Iranian financial institutions to be circumvented."

Financial firms that have started offering cryptocurrency services, particularly in the US, should consider the potential sanctions they are exposed to due to Iranian Bitcoin mining, Elliptic said.