We do the research, you get the alpha!
On Sunday, Iran enacted legislation that officially recognizes cryptocurrency mining as an industry. It’s an attempt to create jobs and attract foreign investment. However, the long-awaited legal certainty comes with additional costs for miners.
The government is hoping that regulating the industry will lead to the creation of large mining farms, which will become productive industrial units. But for this vision to come to fruition, taxes and other costs are being put in place.
For starters, miners will pay an export premium on electricity and will be prohibited from mining during peak electricity-usage hours.
But the chief concern lies in the fact that, even with much-coveted legal certainty for the mining industry, cryptocurrency trading in Iran remains illegal. This means that newly minted coins will need to be exported and yields repatriated, creating an opportunity for taxation.
Iran arrived at the decision to regulate and legalize mining as a reaction to illegal miners taking advantage of the country’s cheap and subsidized energy.
On first inspection, regulation was hailed as a positive step. But, as details have tickled out, it’s becoming apparent that, with higher electricity prices, additional taxes and costs, mining—with its small profit margins—may quickly become unprofitable in Iran.
The Iranian government’s strategy could well backfire, as miners are more likely to chase profits elsewhere, leading to capital flight, said Middle Eastern broadcaster Al Jazeera. The concern for Iran is that it is not difficult for miners to move their operations to more crypto friendly neighboring destinations, including Georgia—a country ranked second-most profitable for crypto mining in 2018—Armenia or even Iraq.
Furthermore, Hamed Salehi, a local cryptocurrency and blockchain researcher, explained to Al Jazeera that the worst scenario would be if the professional mining outfits—those that the regulations are supposed to attract—were to be replaced by a large network of ordinary citizens.
Before you leave, check out our selection of the best bitcoin mining software.