Cryptocurrencies have weakened the U.S. dollar, leading to the collapse of the robust U.S. sanctions regime. Therefore, Iran must use this potential to bypass sanctions.
Can oxygen be confined behind prison bars? No. Bitcoin, and blockchain in general, are exactly like that—no one has the ability to limit them, and eventually, they find a way through.
In 2008, with the creation of Bitcoin, a large window opened in the global economy for everyone. This window offers an escape from banks and their restrictive regulations regarding value transfer and preservation. Back when only a small segment of society was aware of and benefiting from Bitcoin, if the U.S. government and other major economic powers had known it would constrain them, they would have immediately stifled it in its infancy, not allowing a $3 trillion economy to emerge around it. This economy, facilitating large volumes of financial transactions by groups, organizations, and governments incompatible with theirs, would otherwise have stayed under their radar.
Now, however, in 2024, the cryptocurrency economy has matured considerably compared to the past, and new opportunities and threats have emerged in this field. Here, our discussion centers on whether the Iranian government, subject to severe international sanctions, is aware of these opportunities and threats, whether it is making the best use of them to circumvent sanctions, and if the answer is no, what the reasons might be.
The History of Cryptocurrency in Iran
The entry of cryptocurrency into Iran dates back to the early 2010s. Almost concurrent with the start of the Bitcoin network, miners were essentially the pioneers of cryptocurrency in Iran. Over time, digital currencies continued to grow in Iran, just as they were expanding globally. Cryptocurrency mining became a profitable yet underground activity, and a handful of crypto exchanges provided services to the public without regulatory oversight.
Back then, anyone who mentioned Bitcoin was suspected of referring to a Ponzi scheme, as Iranians had negative memories of such scams, and people were quick to confront them. Accepting digital currencies in Iran faced such barriers from the outset, but over time, as public awareness increased, this issue gradually improved. However, official institutions and the government remained largely indifferent to cryptocurrencies. The first reaction from the Iranian government regarding cryptocurrencies came in February 2019. At that time, the Central Bank drafted and published regulations for cryptocurrencies, which included the following provisions:
- Buying and selling digital currencies is not prohibited for Iranian users.
- The use of cryptocurrencies as a payment method is prohibited. (For example, one cannot receive Bitcoin instead of cash in an online store.)
- Cryptocurrencies can be bought, sold, and exchanged in exchanges that comply with regulations.
- Developing digital wallets, considering cryptocurrency wallet regulations, is not an issue for individuals or legal entities.
Furthermore, until 2019, cryptocurrency mining in Iran was not yet regulated, leading to some strange events in the mining industry. Finally, in the same year, an executive regulation for mining cryptographic processing products was announced by the First Vice President, making cryptocurrency mining legal in Iran. According to this regulation, a permit from the Ministry of Industry, Mine, and Trade (MIIMT) is required to use mining devices; otherwise, cryptocurrency mining is illegal, and their electricity connection will be cut, and their devices confiscated by law enforcement.
According to cryptocurrency market experts, these regulations and policies by the government and the Central Bank were merely intended to relieve pressure on these institutions and lacked the necessary effectiveness to handle the profitable and transformative digital currency industry—especially for a sanctions-hit country like Iran, which should maximize the immense potential of cryptocurrencies to bypass sanctions.
The acceptance of digital currencies and public enthusiasm for blockchain technology in Iran may initially seem promising. But when it comes to regulation and the differing approaches of policymakers toward cryptocurrency and mining in Iran, a much bigger obstacle appears—one with no foreseeable timeline for resolution.
A sanctioned country like Iran should make the most of the immense potential of cryptocurrencies to bypass sanctions.
The Importance of Properly Utilizing Cryptocurrencies in Iran
Just as it is essential to leverage modern technology around the world, Iran must also make the best use of today’s technology. Blockchain and cryptocurrencies hold the same level of significance as artificial intelligence. Thus, they should not be overlooked, even for a moment. Furthermore, due to the unjust U.S. sanctions, Iran cannot fully benefit from the latest technologies; in addition, these sanctions have thoroughly impacted Iran’s financial and economic relations. However, due to their decentralized nature, blockchain and cryptocurrencies can be used in Iran without being affected by sanctions. Blockchain and cryptocurrencies could breathe new life into Iran’s sanctioned economy. Yet, the concern is that not only does the Iranian government fail to use cryptocurrencies like a regular, non-sanctioned country, but it is also ignoring the opportunities this industry offers, falling behind in this field.
The significance of blockchain and cryptocurrency use in daily life is twofold for the people and government of Iran, as it allows Iran’s inflation-driven, lagging economy to connect somewhat with the global economy, both through cryptocurrency investments and by enabling money transfers across the world by the public and the government.
A field study shows that 17% of Iranians aged 18 to 65 own cryptocurrency, a figure above the global average of approximately 9%. Iran ranks 28th in cryptocurrency usage globally, and Iranians use cryptocurrencies for international transactions, asset protection, investment, and mining.
Moreover, the government’s adoption of blockchain and cryptocurrencies could drive economic innovation, moving it away from a traditional and inefficient state. Tokenization technology could help address issues in the real estate market and make the country’s economic distribution system fairer. Additionally, the government’s use of blockchain in the economy could reduce corruption. Utilizing specific tokens and digital currencies such as Bitcoin and Ethereum for exports and imports with friendly countries could partially mitigate the issue of banking sanctions. Beyond this, if obstacles are removed, cryptocurrency mining could bring substantial foreign currency into the country, and Iran’s natural energy resources could attract foreign investment. Yet, we see that due to bureaucratic hurdles, the mining industry in Iran remains stagnant, squandering opportunities.
There are numerous other potential uses for digital currencies in Iran; here, we’ve highlighted only a few important ones.
The government’s adoption of blockchain and cryptocurrencies could bring economic innovation, moving it away from a traditional and inefficient state.
Iran’s Key Actions in Cryptocurrency
- In 2018, the Central Bank of Iran prepared a document titled “Requirements and Regulations for Cryptocurrencies,” which included policies and rules for regulating and licensing cryptocurrency-related activities.
- In June 2018, the Iranian government announced its intention to launch a national digital currency, which could allow Iranians to conduct international transactions despite trade sanctions.
- In 2020, the Central Bank of Iran, in cooperation with law enforcement, identified and shut down over 2,000 unauthorized cryptocurrency mining centers.
- In 2021, the Supreme Leader issued a fatwa declaring that the buying, selling, and production of digital currencies are subject to the regulations of the Islamic Republic of Iran, and a capital gains tax on cryptocurrencies was introduced that same year.
- The first recorded import order using cryptocurrency in Iran took place on August 9, 2022, and according to the head of the Trade Promotion Organization, this transaction was successfully completed.
Reasons for the West’s Displeasure with Iran’s Use of Cryptocurrency
Western countries, led by the United States, oppose any form of growth and development in Iran, whether it’s in the arts, cryptocurrency, or other fields. Western governments, unable to control blockchain technology, fear its use by people in sanctioned countries. Due to its decentralized nature, blockchain is resistant to sanctions and uncontrollable, allowing sanctioned nations to use cryptocurrencies to their advantage. These governments are deeply troubled by this and do not hesitate to use any means to limit sanctioned countries’ access to blockchain and cryptocurrency.
According to a 2019 article published by the University of Florida, cryptocurrencies are responsible for weakening the U.S. dollar and, consequently, the stronghold of sanctions against countries like Iran and Venezuela. The article states that cryptocurrencies undermine sanctions imposed on nations that do not follow Western ideologies. As a result, people in sanctioned countries choose cryptocurrencies, thanks to their decentralized nature, as a way to escape escalating inflation and ineffective government policies. For example, from 2011 (when the cryptocurrency market emerged) until now, while Iran’s national currency, the rial, has lost much of its value, Bitcoin, the top cryptocurrency, has gone from 10,000 rials per unit to 22 billion rials—an astonishing increase of 2,200,000%.
The 2019 University of Florida article highlights cryptocurrencies as a threat to the U.S. dollar and sanctions regimes, especially regarding countries like Iran and Venezuela.
Furthermore, in 2018, U.S. Representative Mike Gallagher introduced the “Blocking Iran Illicit Finance Act” in Congress, calling for sanctions against Iranian financial institutions and efforts to prevent the development and use of digital currencies in Iran. The legislation was also introduced in the Senate by Senator Ted Cruz, who demanded sanctions on those offering services connected to the cryptocurrency industry in Iran.
After this legislation was passed, all centralized cryptocurrency exchanges, including Binance, were mandated to enforce Know Your Customer (KYC) requirements and banned from providing any services to Iranian users.
Consequently, cryptocurrency exchanges like Coinbase, Kraken, LocalBitcoins, and the website Blockchain.com restricted access to their platforms for Iranian users. Even the cryptocurrency exchange Bittrex froze millions of dollars in Iranian users’ funds until 2019 without prior warning or explanation.
Similarly, the NFT marketplace OpenSea abruptly removed Iranian users from its platform in March 2022. OpenSea does not involve direct financial transactions; however, Iranian artists and creators lost their NFTs, and buyers of Iranian artwork lost their assets without any warning.
Additionally, the U.S. Office of Foreign Assets Control (OFAC) added Iran to its blacklist to freeze Iranians’ Tether (USDT) wallets.
After the October 7 Hamas-Israel incident, Western governments grew more vigilant about Hamas and its supporters using cryptocurrency. On December 11, 2023, Tether announced the freezing of 41 Tether wallets linked to U.S. sanctions. Iranian cryptocurrency users must now be especially cautious to prevent their assets from being frozen.
Western governments also hold significant concerns about Bitcoin mining in Iran. Blockchain researcher and cryptocurrency commentator Tom Robinson reported that Iran accounts for 4.5% of Bitcoin mining, allowing the country to circumvent trade sanctions and generate hundreds of millions of dollars in Bitcoin, which could be used for imports and evading sanctions.
This report notes that the U.S. has imposed nearly comprehensive economic sanctions on Iran, including a complete ban on imports and sanctions on Iranian financial institutions. Over the past decade, Iran’s oil exports have dropped by 70%, leaving the country in a deep recession with rising unemployment and periods of internal unrest. Despite these sanctions, Iran has found a viable solution in Bitcoin mining.
Western governments are particularly worried about Iran’s involvement in Bitcoin mining.
Iran’s Share in Bitcoin Mining
The Complaint!
The West’s concern over Iran’s progress in cryptocurrency is not new, and the previously mentioned articles highlighting the West’s worry over cryptocurrency use date back to 2018 and 2019, when cryptocurrency exchanges in Iran could be counted on one hand. However, it is perplexing that, despite the West’s deep concerns over Iran’s utilization of cryptocurrency, some individuals within Iran are aligned with them, supporting policies that hinder and suppress the growth of the cryptocurrency industry in Iran.
1. Providing Decentralized Financial Services Domestically and Internationally
One significant concern for the West is Iran’s potential to activate anonymous global cryptocurrency exchanges, offering decentralized financial services worldwide.
Many decentralized cryptocurrency exchanges (DEXs) are already operational globally, serving their users. By establishing a decentralized exchange on blockchain platforms like Ethereum, Solana, or Fantom, Iran could provide global financial exchange services while bypassing sanctions due to the inherently decentralized and censorship-resistant nature of these platforms, thereby generating revenue for the country.
For perspective, Iran’s total foreign trade in 2023 was reported at $63.97 billion by Mohammad Rezvani-Far, Iran’s Deputy Minister of Economy and Head of Customs, while the total trading volume on the decentralized exchange PancakeSwap reached $61 billion in just one week.
2. Innovations and New Use Cases in Blockchain and Cryptocurrency by Iran
The dominance systems fear Iran’s use of cryptocurrency. Blockchain offers unparalleled room for innovation, and the Iranian government could expand this sector by adopting a positive outlook, investing, establishing academic programs, and supporting blockchain research. The Central Bank of Iran could also embrace blockchain technology to advance tokenization and financing methods, which is crucial for a country like Iran facing both sanctions and internal challenges.
3. Managing Currency Rates through Cryptocurrencies
Nations often protect their currency value by importing gold. In 2023, Russia led global gold imports to counter Western sanctions and maintain its currency’s value. While Iran’s Central Bank should store more gold, Bitcoin, the digital equivalent of gold, offers greater liquidity without the storage complications. By holding Bitcoin in reserves, Iran could hedge against dollar fluctuations, given the necessary infrastructure.
The Need for Regulation and Legislative Errors
Beyond Western opposition, Iranian officials have also undermined the nation’s cryptocurrency and blockchain industry, delaying decentralization and hindering potential growth. While neighboring countries capitalize on this opportunity, Iran lags. For example, the UAE has become the Middle East’s crypto hub with steps like welcoming top exchanges, forming partnerships, setting cryptocurrency regulations, introducing a central bank digital currency (CBDC), and becoming a major Bitcoin miner. Meanwhile, Turkey’s embrace of crypto has led citizens to widely adopt it as an alternative to the devalued lira. Turkish President Recep Tayyip Erdoğan has stated that Turkey should aim to be a producer, not merely a consumer, in digital assets—a stark contrast to Iran’s stance. Given Iran’s acute need for cryptocurrency solutions amid inflation and sanctions, it’s crucial to catch up with neighboring nations.
Iran has an urgent need for cryptocurrency solutions due to inflation and sanctions, and should lead the region, yet has fallen behind due to inaction.
Recommendations for Officials
1. Facilitate Cost-Effective Bitcoin Mining with Affordable Energy
Crypto mining could bring low-risk revenue to Iran. With substantial energy reserves but limited export opportunities due to sanctions, the government could offer affordable energy for miners, lifting restrictions to allow the sale or accumulation of Bitcoin in reserves. This approach would add value domestically while helping circumvent sanctions. Removing taxes in this sector could also attract foreign investment.
2. Enable Maximum Cryptocurrency Trading in Iran, Similar to Turkey
By eliminating capital gains tax on cryptocurrency, as Turkey has done, the Iranian government could encourage people to invest in crypto markets, boosting national wealth.
3. Facilitate Decentralized Financial Services by Tokenizing Assets
Iran could see economic improvements by adopting positive cryptocurrency policies and eliminating obstacles. One approach, mentioned in previous issues, involves enabling decentralized financial services through tokenization of real assets, reducing corruption. Legislative leaders should collaborate to draft comprehensive regulations.
4. Encourage Companies to Use Cryptocurrency Internationally
Following Russia’s example of promoting international crypto use by companies could help Iran reduce the dollar’s dominance and bypass sanctions more effectively.
5. Provide Conditions for Crypto Financial Exchange in Iran
Iran could follow El Salvador’s example, allowing citizens to use cryptocurrency for everyday transactions with a cap on daily exchanges. This would diversify payment methods and assist people in combatting inflation.
