How Iran’s Bitcoin Strategy Backfires

Iran Uses Bitcoin Mining to Circumvent Sanctions. However, this Intensifies the Energy Crisis, Lines the Pockets of Khamenei’s Revolutionary Guard – and Facilitates Capital Flight. The Regime Is Learning the Hard Way That It Cannot Control Bitcoin.

What began as a “state-approved workaround for sanctions,” writes the Middle East Forum, “has mutated into a security problem.”

Specifically, it refers to Bitcoin mining. Iran embraced this practice after the US tightened sanctions in 2018: Bitcoin was intended as a tool not only to provide the foreign trade sector with foreign currency reserves but also to finance terrorist groups in the region. Yet, the strategy turned out to be far less successful than hoped—and is now backfiring. Like all autocratic regimes, the Islamic Republic believed it could control Bitcoin, just as it controls everything else in the country. It is now realizing that Bitcoin eludes its grasp.

Perhaps Bitcoin could even help to accelerate the decline of the theocratic dictatorship.

Bitcoin Mining to Circumvent Sanctions

Bitcoin is a money of freedom: anyone can create (mine), store, and transfer it; no one can control, censor, or seize it. For this reason, Bitcoin—whether one likes it or not—offers tyrants like those ruling the Islamic Republic of Iran a chance to break free from crippling financial sanctions. That’s why it has always been interesting to observe the state of Bitcoin in Iran.

Initially, the country adopted the Chinese approach: Bitcoin and other cryptocurrencies were legal, but their usage as a payment method was banned. However, around the 2020s, a shift took place. First, the state legalized crypto payments—albeit only for imports—then it legalized mining and developed a licensing system.

For Iran, Bitcoin was and still is a tool to break through sanctions, using money created domestically from gas and other energy resources rather than exchanging these via exports for foreign currency.

As early as 2021, Iran reportedly produced almost five percent of all new bitcoins. In 2022, the regime issued licenses for more than 10,000 mining farms and allowed the operation of around 90 crypto exchanges. By 2024, according to analysts, $4.18 billion worth of cryptocurrencies had left Iran—a 70-percent increase from the previous year. The plan appears to be working: Bitcoin is boosting the cross-border capital flows of the sanctioned country, revitalizing its parched money streams.

But a closer look reveals a more troubled picture. Bitcoin has become a thorn in the side of the Islamic Republic’s most vulnerable spots.

Bottlenecks in Power Supply

First, mining exacerbates existing bottlenecks in electricity supply. Since around 2018, the country has been suffering from regular, increasingly frequent blackouts.

Today, the power grid seems on the verge of collapse. In Tehran’s suburbs, electricity is cut twice a day for hours at a time; the voltage is insufficient to pump water to upper floors, and public services—including mass transit—shut down during peak hours.

The country claimed to generate 85 gigawatts, but according to 2021 Energy Ministry statistics, capacity is only 64 gigawatts. Many power plants included in official statistics have long since stopped operating, and the government is unable to even approach meeting new capacity goals, while consumption continues to rise. That’s the first problem. The second is increasing wear and tear on the grid. According to an estimate from several years ago, about 13 percent of the country’s electricity is lost in the grid (compared to just under six percent in Germany). These two issues alone have caused regular blackouts.

Now, a third problem has arisen: climate change. Iran is affected by this perhaps more than any other country. Nowhere else in Asia are temperatures rising as quickly; few places are suffering such rapid soil desiccation. Large parts of the country are turning into desert, already triggering widespread internal migration.

At the beginning of May 2025, authorities sounded the alarm that drought was already affecting 44 major dams. Compared to the previous year, water reservoirs are down 37 percent. Some dams, such as those in Tehran Province, are only filled to 24 percent capacity. The snow reserves in the mountains, which historically replenish the water system each spring, have fallen by almost 50 percent over the year.

Because of the drought, around 12.5 gigawatts of power supply are lost. This compounds existing energy supply issues.

Blackouts

Magazines like Iran International have long reported on power outages. But this year, the frequency has increased dramatically. Since March, there have been almost a dozen articles about electricity supply problems.

Blackouts, complains a commentary, “are now a daily affliction. They hit businesses, factories, and households.” In May, bakers across the country demonstrated because rising costs and frequent blackouts are ruining their businesses. “Widespread discontent is growing as blackouts disrupt the lives of millions.” Social media is full of videos showing “people trapped in elevators, traffic lights failing and causing massive jams, and water not reaching upper floors because pumps no longer work.”

Even mobile data connections fail, “because network operators are forced to shut down cell towers to prevent damage when backup batteries run dry.” Many small businesses, “including bakeries, restaurants, and cafes, report spoiling food.”

In Tehran, power outages are so frequent that there are statistics on which neighborhoods are most affected. Unsurprisingly, it’s the poorer ones, the suburbs in the south. Electricity companies do distribute blackout schedules, but residents of the suburbs report even more, unpredictable outages. “We have two blackouts a day, sometimes lasting two hours each.”

Blackouts have been an issue in Iran for years. But this breadth and intensity are new. The country’s power network appears on the verge of collapse.

Mining and the Revolutionary Guard

Bitcoin mining is not the root cause of the power supply bottlenecks. According to statistics, it consumes around two gigawatts, which—compared to a deficit of up to 25 gigawatts—is just a drop in the ocean.

However, mining does exacerbate problems and makes them harder to solve. This is why the Energy Ministry has long tried to better control it. The difficulties encountered in doing so highlight just how hard it is to rein in a force once you’ve invited it into your home.

To start with, there are subsidies—a massive problem: Iran subsidizes electricity more than any other country. One kilowatt-hour costs just 0.2 cents. There are no incentives to be frugal—with blackouts, the opposite is true—nor a market to allocate scarce resources efficiently. Mining one bitcoin costs between $1,000 and $2,000 in electricity. As the Middle East Forum notes, “this makes it nearly impossible to enforce restrictions.” It’s simply too profitable to mine Bitcoin with subsidized power to be effectively prevented.

Then there are the political dynamics. In the Islamic Republic, secular and theocratic elements are entwined. Within the military, the secular, regular forces (Artesh) coexist with the Islamic Revolutionary Guard Corps, which reports directly to Supreme Leader Ali Khamenei. The Guard is not only tasked with eliminating domestic opposition but also runs “black market foreign trade,” circumventing sanctions. The Guard has now become “dependent on crypto mining and prioritizes its operations over national welfare.”

This was evident in 2021: The Energy Ministry tried to shut down an illegal mining farm, but the Revolutionary Guard intervened, apparently using firearms to do so. When the Energy Ministry sought help from the Intelligence and Security Ministry, support was denied. Bitcoin is dividing Iranian state institutions.

In 2022, the government allowed military institutions to maintain their own power lines. This lets the Revolutionary Guard not only secure subsidized electricity but also siphon off portions of the free electricity reserved for public services. They can effectively mine at zero cost.

According to Mitrade, the Revolutionary Guard is the core of a sort of “cartel” that “redirects state resources for personal profit,” leading to corruption within the Guard. Estimates indicate about 100,000 of the country’s 180,000 mining machines belong to this cartel and its associated businesses.

The Middle East Forum concludes: “The Revolutionary Guard’s relationship to the government is becoming increasingly parasitic rather than symbiotic. The Guard enriches itself while causing capital flight and blackouts, loosening the government’s control over the economy.”

Capital Flight

This brings us to the second major problem Bitcoin creates for the Islamic Republic: capital flight.

Originally, cryptocurrencies were intended to revive moribund international trade. But so far, this effort has largely failed, claims the Middle East Forum. According to one report, Iranian merchants must send money to the United Arab Emirates to convert it into cryptocurrencies, incurring fees of over 20 percent.

Cryptocurrencies are, however, extremely useful for capital flight. “Iranian exchanges are currently experiencing a surge in users and outflows, with transaction patterns clearly indicating capital flight,” explains blockchain analyst Chainalysis. Looking at the capital flows reveals “less evidence of illicit finance or state activity and more that the country’s citizens increasingly distrust their government and are urgently seeking to move their wealth abroad.”

Capital flight from Iran is currently exploding. Since 2018, it has grown by 450 percent; in the first nine months of last year, $14 billion left the country.

A fundamental reason is inflation. Official exchange rates—whereby one dollar has supposedly cost a stable 42,000 rial for years—are pure fantasy, since no one officially exchanges dollars for rials. On black markets, the exchange rate fell over the past year from about 577,000 rial per dollar to 830,000, peaking above a million in April. The economic situation continues to deteriorate; the IMF forecasts growth of only 0.3 percent for 2025.

Bitcoin and other cryptocurrencies play a significant role in capital flight. Just as the West uses sanctions to prevent Iran from transferring money abroad, the regime tries to stop its citizens from taking money out of the country. And just as Bitcoin lets Iran circumvent sanctions, it lets citizens circumvent capital controls. For many Iranians, Chainalysis explains, “cryptocurrencies represent an alternative financial system” that more and more people are using “to protect their wealth and circumvent financial restrictions.”

Certainly, not all of the $4.18 billion in crypto leaving the country represents capital flight; and cryptocurrencies make up only a portion of the total $14 billion in capital leaving Iran. But they remain an inseparable part of this phenomenon—just as miners are to the power shortages. And as in that sector, they make it difficult, if not impossible, to get a handle on the problems.