How come crypto mining in Iran is so profitable?12th June 2019
Many don’t even consider Iran to be at the forefront of cryptocurrency adaptation, but in fact, it is the country that many believe, will be the first to introduce a nationalized cryptocurrency.
Yes, the middle eastern state is very friendly to the blockchain technology and even provides subsidies on electricity for using it as a mining source for cryptocurrencies.
When the crypto winter back in 2018 hit, nearly every large crypto mining company had to reduce its operations, lay off hundreds of staff and delay all of their expansion plans simply due to the price drops.
Iran was barely scratched however, the local crypto mining companies continued operations like anything had even happened. Many were curious as to what these companies were doing differently from others that generated them so many profits even during a recession of the crypto market.
The Iran energy subsidies
Iran is actually quite famous in the region for its subsidies on energy consumption. The state spends around $2 billion each year on energy so that the population has to dish out only a small fraction of the actual cost.
Electricity being the primary cost of operating a crypto mining company is actually a key player here. If the company does not have anything to worry about besides payrolls and maintenance, then it has a much larger margin for making profits.
Furthermore, the Iranian authorities were quite forgiving towards the mining companies, going as far as recognizing the industry as a legitimate part of the economy and providing all the benefits that regular corporations could use within the country.
However, that may soon change due to shifts in the political spectrum of the region. Tensions are beginning to rise between traditional financial companies and crypto mining firms due to the inequality in payments and the energy subsidies from Iran are also in danger from the US sanctions.
Future looks grim
Despite the fact that institutional interest in cryptocurrencies has been growing worldwide, there are very few partnerships being signed in Iran as we speak. Most of the countries that are leading the blockchain B2B agreements are in the West like the European Union and the United States of America.
Iran is quickly falling behind the scalability of the blockchain, but it also looks like they’re about to throw another wrench in the industry’s gears.
The Minister of Energy of Iran has announced that crypto mining companies should start paying real prices on their energy consumption and not benefit from the state subsidies.
Many thought that this was a personal vendetta against profitable companies, but in reality, it is a desperate measure to keep the country’s economy afloat in the long term.
The United States sanctions have hit hard against the Iranian economy and are bringing it down as we speak. The government simply cannot afford to continue its features any longer and needs to find ways to cut costs no matter how damaging they may be in the long long-term. The mid and short term economic stability is much more pressing for the authorities.
However, this could be the perfect time to implement an amendment like this, because the crypto market is back up again. The energy costs aren’t going to be as damaging to the companies anymore and they can also stay afloat while paying the full price for energy consumption.
Was it a personal vendetta though?
Despite the fact that the authorities try to avoid blaming US sanctions, many citizens and foreign experts already understand that it’s indeed the case. However, this may not be the only reason crypto mining companies may take a hit to their profitability.
You see, these companies have been enjoying relatively free operational procedures, without the government interfering in their inner circles too much. However, the Central Bank of Iran has already proposed that maybe it’s time to introduce a regulation on these companies and tax them accordingly.
The compiling costs in taxes, energy consumption and employee wages could finally bring down these behemoths, but that still remains to be seen.
Iran is still in the midst of discussing a national cryptocurrency in the future, which will be used as an alternative to their current rial.
This is obviously being done to safeguard the economy in the case of even harder US sanctions which have already done a number on rial’s exchange rate to the US Dollar.
Should the authorities go ahead with the national cryptocurrency idea, they will definitely need the help and guidance of their local crypto mining companies. Whether or not they get that guidance depends solely on what type of regulation they introduce.
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