Iran has banned bitcoin mining for the next four months in an attempt to conserve energy – just as mounting environmental concerns could empower Ethereum to close the gap between the two cryptocurrencies, according to analysts.

The Islamic Republic of Iran’s decision to pull the plug on the nation’s mining isn’t just confined to bitcoin, but covers all cryptocurrency mining in the country.

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The reason behind the decision is linked to what has increasingly become a point of tension between cryptocurrency advocates and their detractors: the energy required to mine digital money. More specifically, the concerns about the environmental impact of creating cryptocoin.

Iran’s cryptocurrency mining ban is similarly linked to energy. The country is currently going through its dry season, during which demand for electricity has surged.

The country is usually rich in cheap energy thanks to its natural fossil fuel resources, which have motivated miners to set up shop in Iran as the traditional mining process is very energy intensive.

However, Iran is currently experiencing a growing number of blackouts as the nation’s hydroelectricity plants have been hobbled by the drought.

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This is not great news for the people wanting to turn their air conditioning up on full blast to find refuge from the heat, which can climb above 40C.

The Iranian government has partly blamed the power outages on the mining of bitcoin, ether and other cryptocurrencies in the country.

“The ban on the mining of cryptocurrencies is effective immediately until September 22 … Some 85% of the current mining in Iran is unlicensed,” president Hassan Rouhani said in a televised speech at a cabinet meeting, Reuters reported.

Rouhani is facing criticism for the outages just as the next presidential election is waiting around the corner next month.

Blockchain analytics firm Elliptic estimates that around 4.5% of all the world’s bitcoin mining takes place in Iran.

China accounts for more than 75% of the world’s bitcoin mining, according to a study published in Nature Communications.

Looking beyond the scope of Iran’s bitcoin, ether and other cryptocurrencies ban, the news comes as digital money is increasingly facing a lot of criticism for its environmental impact.

This notion was, for instance, the reason given by entrepreneur extraordinaire Elon Musk when Tesla stopped allowing customers to buy its electric cars with bitcoin – not that many people seemed to have used the option anyway.

Given Musk has been one of Silicon Valley’s most high profile advocates of cryptocoin and Tesla had bought $1.5bn of bitcoin just months prior, some were taken aback by the decision.

“To be clear, I strongly believe in crypto, but it can’t drive a massive increase in fossil fuel use, especially coal,” Musk tweeted.

The SpaceX founder noted that the Cambridge Bitcoin Electricity Consumption Index (CBECI) operated by the Judge Business School at Cambridge University at the time estimated that the world’s bitcoin miners were using electricity at an annualised rate of 148.77 terawatt-hours per year (TWh/yr).

While that was somewhat up on 128 TWh/yr as of two months prior, it has since slumped back to 113 TWh/yr.

These calculations have been used to suggest that the energy consumption from bitcoin mining far outstretches that of nations like Argentina.

But as Verdict has noted several times, estimating the energy consumption of bitcoin mining is not an exact science.

These calculations often fail to recognise that most of us use many more watt-hours of gas, heating oil, motor fuel, etcetera, than of electricity. Nations and economies use much more heat energy from coal, oil, gas and so on than electricity from any source.

In fact, according to the International Energy Authority, total global energy demand in 2019 was 14,385 Megatons-of-oil-equivalent, which translates to roughly 167,000 TWh. Feel free to compare that to the miniscule 113 TWh used by bitcoin miners.

Transport, meanwhile, uses fully 25% of total world energy, according to estimations of the US Energy Information Administration. The agency also noted that light-duty vehicles such as cars consume more than buses, trucks, shipping and railways combined.

Add to that the environmental impact of sourcing the resources to create the cars as well as the factories they are built in and the energy needed to assemble the vehicles, and one can understand why the bitcoin community may think its bad rep could be a tad undeserved. Tesla and Elon Musk, of course are primarily engaged in making cars rather than dealing in bitcoin, though you wouldn’t always know that from Twitter.

In any case the bitcoin miners are trying to fight back. This week saw the official formation of the Bitcoin Mining Council, a group of industry stakeholders that includes MicroStrategy CEO and bitcoin evangelist Michael Saylor, leading North American bitcoin miners and – maybe not so surprisingly – Musk himself.

“The miners have agreed to form the Bitcoin Mining Council to promote energy usage transparency and accelerate sustainability initiatives worldwide,” Saylor tweeted.

Some analysts, however, believe that this push to do something about its reputation may be just a bit too little too late.

Part of the reason behind this notion is that the alternative cryptocurrency ether is evolving. The cryptocurrency is based on the Ethereum blockchain, which was co-founded by Vitalik Buterin and Gavin Wood in 2014.

Ether has long been trailing in the wake of bitcoin. It is currently trading at $2,795 compared to bitcoin’s $39,210.

However, ether does have advantages over the No. 1 cryptocoin.

“Bitcoin has a limited amount of use cases,” Nicklas Nilsson, senior analyst at GlobalData and the author of a new thematic research report about blockchain, tells Verdict. “I think everyone has kind of agreed already that it’s not a method of payment. There are better cryptocurrencies for payments that are more efficient, faster, easier to scale, etcetera.”

Comparatively, ether has many more use cases and has been used to fuel many of the recent blockchain trends.

“Ethereum is the crypto equivalency of Amazon, of AWS,” Nilsson argues. “So basically everything you read about cryptocurrency, nowadays – smart contracts, NFTs (non-fungible tokens), decentralised finance – almost all of that is built on ethereum.”

But a big change is coming that may give ether an even great advantage in terms of its its environmental impact.

Ether is moving away from the traditional way of mining cryptocurrencies, referred to as proof-of-work, to a new concept called proof-of-stake. Bitcoin has made no such public bid.

Proof-of-work revolves around the traditional way of crypto mining. In this method, a new block is created with miners using their computational power to essentially solve complex cryptographic puzzles. By solving them, the miners compete for the right to create the next block. This method is highly energy intensive.

Proof-of-stake is a bit more straight-forward. This method selects the validators of the new block by using an algorithm that selects them depending on how many tokens they own. To make a new block, validators have to lock their tokens for a certain time in a way similar to a security deposit.

“This basically means that if I try to cheat the system or do something wrong, I will lose more than I will receive,” Nilsson says.

The benefit from an environmental point of view is that it can dramatically cut the energy needed to create new blocks.

By making the switch, ethereum expects to cut its energy consumption between 1,000 and 10,000 times over.

“We go from consuming the same energy as a medium-sized country to consuming the same energy as a village,” Buterin told CNN Business last week.

Bitcoin has made no such move, which could mean that ether will jump from second to first place as the cryptocurrency of choice, especially if the price of bitcoin continues to collapse. Although, ether has also lost almost half of its value since its $4,236 peak in May.

“If bitcoin sticks with its technology exactly as it is today,” Buterin said, “there’s a big risk it will get left behind.”

Nilsson holds assets in both bitcoin and ether.