Iran is offering bounties to combat illegal cryptocurrency mining activities which officials say are seriously disrupting the country's electricity network amid severe power shortages crippling the country's industrial production.

Iran is facing its most severe heatwave in 50 years causing nationwide power outages as the government struggles with billions of dollars' worth of deficit. Industrial production faces a crisis, as manufacturers report that frequent power outages have often halted operations.

Now cryptocurrency miners are apparently rubbing salt into the wounds of Iran's electricity network, according to the CEO of Iran’s state electricity company Tavanir.

"Opportunistic individuals have been exploiting subsidized electricity and public networks to mine cryptocurrencies without proper authorization. This unauthorized mining has led to an abnormal surge in electricity consumption, causing significant disruptions and problems within the country's power grid," said Mostafa Rajabi Mashhadi.

In response to the growing issue, Iranian authorities have initiated a crackdown on illegal miners. To encourage public cooperation, officials say a reward has been introduced.

"A bounty of one million toman (approximately $20) will be awarded to individuals who report every single unauthorized cryptocurrency mining equipment," Rajabi said.

Cryptocurrencies are created through a process known as mining, where powerful computers compete with each other to solve complex mathematical problems. The process is highly energy-intensive, often relying on electricity generated by fossil fuels, which are abundant in Iran.

"So far, more than 230,000 illegal cryptocurrency mining devices with a power consumption capacity of 800 to 900 megawatts have been discovered. Their electricity consumption is equivalent to that of the Markazi Province," Rajabi noted. "Providing this amount of electricity would require the construction of a 1,300-megawatt power plant."

In recent years, Iranian authorities have regularly announced the discovery of illegal cryptocurrency mining machines in different parts of the country. Many of these operations were based in public locations such as schools and mosques that receive free or heavily-subsidized electricity.

In 2022, the state’s Intelligence Ministry claimed they blocked over 9,000 accounts belonging to 454 individuals used for illegal or undeclared exchanges of currency and digital currency. Based on the exchange rate during that period, the relevant trades amounted to 600,000 billion rials or approximately $2 billion.

As experts have often said, the Iranian government has a self-inflicted “muddled relationship with crypto-currencies”, which have served to obscure various forms of trade, aiding in evading sanctions, while simultaneously presenting avenues for illicit activities.

Reports in Iranian media suggest that large-scale crypto mining has been taking place by influential or well-connected networks, as well as some Chinese companies that are using cheap and subsidized electricity in mining farms they set up in Iran. This could have been permitted only by Iran's intelligence services and the Revolutionary Guard.