A conference titled “The Difficult Path of Blockchain in Iran: Restriction or Transparency” was held with the participation of private sector activists and representatives of regulatory bodies.
The Central Bank: Cautious and Still Opposed to Cryptocurrency Exchange
While the private sector, ranging from researchers to cryptocurrency exchange platforms, agrees with regulation and transparency for cryptocurrencies, they oppose restrictions like taxation, which they see as an excuse to prevent capital flight. Members of the Islamic Consultative Assembly (Parliament) are divided into two groups: opponents of cryptocurrencies who seek to impose a capital gains tax on crypto and proponents who try to convince the opponents to take a softer stance. Despite these discussions, cryptocurrencies still face a staunch opponent: the Central Bank. According to a Central Bank official, given the macroeconomic factors in the country, every individual who wishes to preserve their assets is inclined to sell their property in Iran and invest in another country. Currently, cryptocurrencies are being blamed as the main culprit for this trend.
The conference titled “The Difficult Path of Blockchain in Iran: Restriction or Transparency” was held in November 2023 by Donya-e-Eqtesad at the Kish Invex 2023 event, with the participation of private sector activists and representatives of regulatory bodies. In this panel, MohammadReza Mani-Yekta, Head of the Payment Systems Supervision Department at the Central Bank, faced Mojtaba Tavangar, a member of the Islamic Consultative Assembly, Pooria Asteraky, editor of the Blockchain and Crypto Assets Research Journal, and Bardia Seyedahmadnia, co-founder of Wallex Exchange.
Mani-Yekta, as a representative of one of the governing bodies, explained the proper regulatory approach to this field: “The concept of cryptocurrencies is generally broad and at the same time complex. Developing a strategy for something that, in addition to its inherent complexity, also has a lot of ambiguity worldwide, especially at the macroeconomic level, requires short-term, medium-term, and long-term perspectives. Many factors influencing strategic decision-making, especially in the short term, depend on economic conditions, as cryptocurrencies inevitably impact and are impacted by the economy. This interaction, combined with the complexities of the economy, makes every decision and strategy formulation difficult. One reason we face challenges today is the emergence and growth of cryptocurrencies in the legal gray area of regulations. While some areas have regulatory restrictions and others remain legally silent, this creates a high-risk environment for investment and development. However, we are witnessing an increase in investment and the growth of this space.”
He further elaborated on the regulatory process for cryptocurrencies at the Central Bank: “The Central Bank began policy-making and strategy-setting in this field in 2019. In a working group that included both the private and public sectors and all stakeholders, we forecasted the economic space under various scenarios with the question of what the correct regulatory approach should be. Should we move toward development, or should we adopt control and restriction? As a result of this working group, a document titled ‘Cryptocurrency Scenario Planning’ was drafted and sent to the National Cyberspace Center. The review of this document led to resolutions from the center, and so far, despite the legal gray area, those resolutions have helped ensure that the minimum required policies are in place.”
Cryptocurrencies are at the forefront of knowledge
Mojtaba Tavangar, head of the Digital Economy Committee of the Islamic Consultative Assembly, then addressed the issue of cryptocurrency regulation. He explained the role of various institutions in this matter: “Cryptocurrencies and crypto assets are at the forefront of knowledge, and every day we face new developments in this field. A serious concern in this domain today is regulation and governance. Under the current circumstances, a supra-organizational body like the Supreme Council of Cyberspace has been asked to be the final decision-maker. Although cryptocurrencies have various aspects, from the monetary and payment perspective, they need to be examined within the domain of the Central Bank. Regarding tokenization and financial provision, bodies like the stock exchange or the Ministry of Economy should weigh in. These institutions can each offer suggestions regarding cryptocurrencies to the Parliament. But to comprehensively examine the different dimensions of this field, there needs to be a central body for final decision-making so that the current disorder can be resolved, the same disorder that has reduced Iran’s share in areas like mining and related fields.”
“A serious concern in cryptocurrency today is regulation and governance.”
— Mojtaba Tavangar
Pooria Asteraky, editor of the Blockchain and Crypto Assets Research Journal, spoke about the economic impact of cryptocurrencies on Iran’s economy: “When we talk about cryptocurrencies and their economic opportunities worldwide, we must understand that Web 3 encompasses both blockchain and artificial intelligence. The next generation of all digital developments, which today constitute a significant part of the global economy in various countries, will be built on the web, and Web 3 will play an even more significant role. Web 3 will create the largest wealth shift in world history, which will occur within this decade or, at most, the next. Just as the Industrial Revolution shifted wealth from agriculture to industry, or when the use and refining of oil as fuel created a wealth shift for oil-producing countries, now, with Web 3—particularly in areas like tokenization—a massive wealth shift will occur, creating and reproducing trillions of dollars.”
In today’s Iran, using cryptocurrencies is even more critical
Asteraky emphasized the importance of using cryptocurrencies in Iran, explaining: “Any country under normal circumstances can benefit from blockchain and cryptocurrencies, but in Iran’s situation, using cryptocurrencies is even more critical. In sanction conditions, when we lack banking methods for transferring money globally, our national currency is devaluing, the country’s economic growth is lagging, and the gap between our GDP and that of our regional competitors is widening if the rest of the world is taking one step toward blockchain, we should be taking ten.”
“If the rest of the world is taking one step toward blockchain, we should take ten.”
— Pooria Asteraky
Bardia Seyedahmadnia, co-founder of Wallex, also participated in the discussion, addressing the opportunities and threats related to limiting cryptocurrencies: “Although this field, with all its complexities, needs to move from a gray legal area into a structured legal framework, when we establish a framework, we expect people to operate safely within that framework. The restrictive approach seems to contradict the concept of transparency and regulating this space. As exchange players, we seek transparency because our users, as do the Central Bank and the authorities, benefit from it. But suppose we try to confine this space within a legal framework and stifle its growth due to potential risks. In that case, the market’s capacity will shrink, even though the market is what directs the business environment. Since 2020, the cryptocurrency space has been observable, and the exchange industry has been operating transparently within this framework. If we aim for transparency and want to combat money laundering and fraud, there should be a system that various organizations can refer to for verification. Are we now going to suppress this space and drive it underground?”
Iranian Exchanges Lost Their Users to Foreign Platforms
Seyedahmadnia highlighted the missed opportunities for Iranian businesses: “Foreign platforms are heavily focused on Iranian users. This causes businesses operating under local regulations to lose users to foreign platforms beyond monitoring. Not only does the user move their identity out of Iran and into another space, but they also move their assets out of the Iranian system. In such circumstances, while businesses suffer greatly, the government suffers even more. If we make the space transparent, users will be encouraged to operate in a transparent and regulated environment, and this space will grow. Moreover, this expanded, supervised space would also appeal to the government because it can be controlled and managed. This is about managed growth, which all businesses support, but this domain cannot be managed with restrictions alone.”
Ali Miri, moderating the panel, challenged Mani-Yekta with several points. He referred to a recent Wall Street Journal report showing that despite restrictions in China, $90 billion, or 20% of the global trade volume on Binance in one month, came from Chinese traders. This statistic demonstrates that imposing restrictions drives capital into underground markets. Miri also touched on capital flight in Iran, which has recently been attributed to cryptocurrencies. According to him, based on Central Bank statistics, $200 billion in capital fled Iran between 2001 and 2021, though macroeconomic factors must be considered. He asked how concerns like underground markets and increased fraud should be addressed with restrictive measures.
Mani-Yekta responded: “When we talk about the space of crypto assets and decentralized finance (DeFi), it’s not just about trading. Several main elements shape decentralized finance: Central Bank digital currencies (CBDCs), tokenization of various assets, crypto asset mining, and trading. So, trading is just one of four major components in forming DeFi. Our country’s policy in other areas is clear. In mining, we are developmental and proactive; in the issuance of crypto assets and tokens, issuance is controlled; and in CBDCs, we are one of the leading central banks. It’s only in the exchange and trading space—due to the country’s economic conditions—that our policy is restrictive. Trading is important, but the entire industry and its actors are currently focused on it because its benefits and returns are immediate. Its growth rate is much faster than other spaces, and investment in it offers attractive short-term returns. This steers businesses in that direction, even though we are in a special economic situation, and the business environment must also consider the regulator’s concerns.”
People Want to Sell Their Homes and Move Their Assets Abroad
When asked whether people’s interest in crypto trading stems from economic necessity, Mani-Yekta responded: “Right now, people need to sell their homes and transfer their assets abroad. This is not solely due to macroeconomic policy-making. Policy-making is about setting the direction, but what happens in the economy and the direction of economic events is another matter. We must not forget that we are in an economic war. We cannot ignore these parameters and expect to meet all the investment needs of the people without considering the household budget. We can’t set aside household financial factors and macroeconomic parameters in financial provisioning and simply focus on household investments.”
“Right now, people need to sell their homes and transfer their assets abroad, but we must not forget that we are in an economic war.”
— MohammadReza Mani-Yekta
In response to whether restrictions would lead to an underground market, Mani-Yekta said: “Part of all control policies inevitably leads to the creation of a gray area, but the risk of entering that space is so high that a rational segment of the economy will avoid it. At the same time, the economy involves risk; some people accept that risk without considering the social and governmental safeguards and invest in high-risk areas, but that’s another discussion. Nonetheless, we must recognize that DeFi is not just about trading. Moreover, restricting the space doesn’t mean we’re preventing people from entering it. There are other strategies pursued by developed countries that we are overlooking, focusing solely on expanding the market without considering the economic impacts. For instance, developed countries that don’t have issues with currency or capital flight manage this market through taxation. This control policy isn’t damaging and can be implemented cautiously and carefully.”
What Impact Have Cryptocurrencies Had on Capital Flight and Currency Outflow?
Miri, agreeing that the government is aware that people are turning to cryptocurrencies due to economic factors yet has opted for a restrictive policy, asked Asteraky about the validity of claims that cryptocurrencies lead to harmful economic effects, such as capital flight or weakening of the national currency.
Asteraky responded: “It’s true that blockchain technology and its applications aren’t limited to trading, and we acknowledge that criticism. Some of these applications in our country have faced restrictions—particularly the previous administration’s destructive actions regarding crypto mining or the stock exchange’s lack of constructive tokenization measures. However, I must disagree with the claim that buying Bitcoin and sending it to a personal wallet constitutes capital flight or currency outflow. We talk more about trading because every application in DeFi, and in effect every smart contract transaction, is a trade. If we don’t legalize trading in the country, every smart contract will be deemed illegal. Therefore, legalizing trading is essential. Another point is that exchanges globally leverage blockchain technology for two developmental factors: capital accumulation, since exchanges generate high financial turnover and returns and can drive technological development and technical knowledge. Today, there are companies in Iran developing blockchain infrastructure and software that are on par with global companies. The reason they haven’t become as big as Binance isn’t due to a lack of expertise but due to macroeconomic factors. If we didn’t have sanctions and restrictions, we would have reached that level of development. Therefore, the importance of trading in Iranian exchanges lies in the capital and technical knowledge necessary for developing other blockchain sectors.”
Taxation Leading to Capital Outflow
Asteraky then touched on the controversial issue of cryptocurrency taxation and the policies of other countries: “Capital gains tax applies to four asset classes: vehicles, real estate, gold and jewelry, and fiat currency. Each asset is limited to domestic markets, meaning if you own them, you are bound by the country’s economic rules. You can’t take real estate, cars, or fiat currency out of the country, as this would be considered smuggling. But this isn’t the case with cryptocurrencies. Cryptocurrencies are part of a global fluid market. Today, if restrictions are imposed on crypto within the country, millions of dollars can be moved between Iran and Brazil instantly, and no one can stop it. So, imposing taxes could lead to a heavy outflow of capital. The second issue with taxes is that countries like Germany, which has developed its economy based on taxation, don’t tax cryptocurrencies. If we consider an economy similar to ours, Turkey, which experienced 80% inflation after the elections and a more than 60% decrease in its national currency’s value in one year, not only has no restrictions on cryptocurrencies, but it also doesn’t impose VAT or income tax on them. Why? Because they recognize both the risks of capital flight and the benefits of capital inflows.”
The Failed Experience of Restricting Cryptocurrencies
Miri referenced the saying, “Testing what’s already been tested is a mistake,” referring to countries like India and Nigeria, which initially imposed restrictions on cryptocurrencies but ultimately reversed their decisions. He then asked Tavangar if the private sector has had any role in cryptocurrency-related decisions in the Iranian Parliament. Tavangar responded: “The private sector has not been formally involved in these decisions. We have tried to give well-established institutions a seat at the table in various laws. For example, the Chamber of Commerce has a 140-year history and has voting rights in the Economic Council and the High Council of the Stock Exchange. But in newer areas like fintech and innovation, this hasn’t happened. The High Council of Cyberspace occasionally discusses these issues with the private sector, or in the case of taxes, the private sector warned us. However, the warning came after we had already made our decision.”
“Countries like India and Nigeria initially moved to restrict cryptocurrencies, but ultimately retreated.” -Ali Miri
Tavangar also addressed the issue of self-regulation in the crypto space: “In newer discussions, the private sector must make decisions on its own. We can’t make decisions about different aspects of cyberspace in closed rooms. If we restrict cryptocurrencies behind closed doors, we’ll see currency outflow and capital flight—especially since Iran’s trade balance in cryptocurrencies is positive. Moreover, official and unofficial statistics show that only 1% of global money laundering occurs via cryptocurrencies. Therefore, in making future laws and decisions, we must also consider the industry and seek the opinion of the private sector. One issue is that the structure of the industry associations in this area is not well-defined. In the Seventh Development Plan, we took a positive step by defining a role for the Iran Computer and Information Technology Trade Association. If we can give it legal recognition, we can later utilize its capacity in cryptocurrency-related legislation.”
Gold or Bitcoin for Investment? It Depends on Individual Choices
In the continuation of the discussion, Ahmadnia, who has access to exchange data, commented on the role of cryptocurrencies in currency outflow from the country: “When a country experiences inflation at the macroeconomic level, people seek to align their assets with inflation. These assets include real estate, gold, cars, and stocks. In recent years, the cryptocurrency market has been added to these options, helping individuals protect themselves against inflation. These assets could be Bitcoin, Ethereum, or even Tether, as Tether operates in tandem with the U.S. dollar. People decide how to distribute their investments among these assets. I believe people prefer free choice, even if it might result in losses.” He explained the division of people’s investments across different assets: “In Iranian society, there are different groups with varying lifestyles, and each person’s lifestyle dictates which asset group they invest in. Some may not invest because their expenses don’t allow them to, while others may have the means to invest but choose not to put their assets into crypto, opting for other markets instead. Although the digital currency market is easily accessible, so are Iran’s gold and currency markets. Therefore, whether someone invests in crypto or gold is a personal choice.”
Ahmadnia emphasized that while the transparent market is observable, the underground market is not, adding: “The transparent cryptocurrency market in Iran ranges between 500 and 1,500 billion tomans daily. However, I estimate that the cryptocurrency ecosystem in Iran accounts for only 1-2% of the country’s overall economy. In other words, the money moved into other assets doesn’t get transferred into crypto.
Cryptocurrency is just an easily accessible option for users alongside other assets.” -Bardia Seyedahmadnia
Does the Government Accept DeFi?
The co-founder of Wallex commented on the focus of exchanges on trading rather than other areas:
“We would like to launch DeFi within our exchange platform, for example, tokenize real estate, which is an attractive asset class even from the government’s perspective. However, introducing any element into DeFi requires trading. So, the question is whether the government can accept DeFi, which involves accepting deposits and offering interest in a decentralized space. Would the government allow users to collateralize their assets in the blockchain network and earn interest? These are some challenges we face when working in the DeFi space.”
After this, Mani-Yekta summarized his statements, noting that the private sector’s input had been considered during decision-making and policy issuance. He added: “We still have disagreements on the concept of capital outflow. We can’t agree on higher-level frameworks until we reach a mutual understanding of the fundamental issue. We are in a unique economic environment, and from a monetary and banking policy perspective, this should be considered—trust us on this. On the other hand, alongside qualitative discussions, we need to use quantitative measures to make informed decisions and analyze their economic impact.”
He concluded by saying: “I also believe that we should provide people with safe investment opportunities, but should we place their investments on a public blockchain? Or can we tokenize those investments in the token economy? For example, tokenizing real estate would allow a large portion of society to enter the real estate investment space when the volatile market and people want to reduce their risk. Why should we ignore this potential?”
In his closing remarks, Tavangar emphasized: “Cryptocurrencies, under the current circumstances, offer many applications across various institutions, including security, monetary, and banking sectors. Given the global economic situation and the shift in discourse across economic sectors in our country toward de-dollarization, cryptocurrencies are essential tools to advance our economy. So, if the world uses this tool by 30%, we should use it by 60-80%, and we must pay special attention to it.”
Bringing Foreign Currency to Iran: From Mining to Exporting with Cryptocurrencies
In his concluding remarks, Asteraky highlighted that the main concern of the government and the Central Bank revolves around the dollar exchange rate and the impact of cryptocurrencies on it. He said: “I pose a question, and I hope the Central Bank will honestly examine it with actual numbers. If Bitcoin had never been invented, how much would the dollar cost in Tehran today? I believe it would be more expensive because our evidence shows that cryptocurrencies have brought dollars into the country. This has happened through mining, the sharp increase in the value of assets held by users, the sale of NFTs, profits from trading, and profits from exports. We now have the phenomenon of exporting with cryptocurrencies. However, the Central Bank has not yet devised a plan to channel this currency into the NIMA system and establish a framework. Instead, they are looking to tax cryptocurrencies, destroying the blockchain industry. A 0.5% tax could lead to capital flight because capital is fearful.”
Bardia Seyedahmadnia also concluded by urging the government to create more opportunities for dialogue with the private sector. He said: “Any action taken outside the crypto and exchange ecosystem presents risks for us and our users, and we want to highlight these issues. We want to provide data and figures on the impact of a 25 million toman transaction limit for crypto platforms. What has closed payment gateways for cryptocurrencies resulted in? What are our predictions regarding the capital gains tax? The tax framework may be effective in some countries, but is it effective for Iranian users? We can even discuss different taxation models. We definitely have solutions to increase transparency in this space and ensure controlled growth. These issues require discussion, and continuing these meetings can help bring more alignment between policies and this ecosystem.”
