Cryptocurrency in Iran

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Cryptocurrency in Iran has emerged as a pivotal response to economic pressures and global isolation. Iran's interest in cryptocurrencies began in 2017 when international sanctions obstructed Iran's access to the global financial markets. Iran's cryptocurrency market faces challenges like high energy costs and the involvement of the Islamic Revolutionary Guard Corps in illicit activities.

Contents

Historical context and market development

Iran's interest in cryptocurrencies has grew since 2017 when international sanctions severely obstructed Iran's access to the international financial system. This resulted in a growing reliance on Bitcoin and other digital currencies as alternative methods to bypass the sanctions. [1] [2] [3]

In 2019, the government legalized cryptocurrency mining under specific conditions. This decision was partly influenced by Iran's huge energy resources, which made mining lucrative despite the fact that digital currencies mining is energy-intensive. [4]

Regulatory framework

Mining regulations

Iran legalized cryptocurrency mining in 2019, recognizing the potential for revenue generation amidst economic sanctions. [4] [1] However, the legalization came with heavy regulations, including requiring miners to sell their digital assets directly to the Central Bank of Iran (CBI). Licensed miners are also subjected to high energy tariffs, which have made mining financially unsustainable for many. This has led a significant portion of Iran's mining activities to go underground. [5]

Exchanges and transactional controls

Iranian cryptocurrency exchanges such as Nobitex have been increasingly popular among citizens. However, these exchanges operate under stringent regulations. [1] [2] The Central Bank prohibits the use of foreign-mined cryptocurrencies for domestic transactions, reinforcing government control over the digital currency market. [4] Despite these measures, many Iranians utilize virtual private networks (VPNs) to access foreign exchanges, circumventing local restrictions and avoiding scrutiny. [1] [2]

Mining sector and energy challenges

Bitcoin mining is highly energy-intensive, requiring substantial electrical resources. Iran's power grid is both fragile and costly to maintain, with frequent outages and a loss of about 13% of electricity during transmission. [5] Licensed miners must pay premium rates for electricity, pushing many to abandon legal operations for underground, unlicensed mining. [5] As a result, Iran's share in global Bitcoin mining has decreased from 4.5% in 2021 to around 3.1% in 2024. [5]

Central Bank of Iran’s blockchain projects

In recent years, the Central Bank of Iran has shown a growing interest in blockchain technology. Notably, the development of the Borna blockchain platform was launched in conjunction with Areatak, an Iranian blockchain solutions provider, to create a digital framework for Iran's banking and financial sectors. [2] This project, along with the Kuknos Network, reflects the government's efforts to capitalize on blockchain technologies while maintaining strict control over digital assets. [4]

Adoption and public perception

With inflation rates soaring, many Iranians have turned to cryptocurrencies as a means of preserving wealth. Alongside more traditional assets such as gold and foreign currencies, Bitcoin and other digital currencies have gained popularity among citizens looking to protect their savings from the devaluation of the Iranian Rial. [5] [6]

The role of the IRGC in Iran’s cryptocurrency market

International sanctions have significantly limited Iran's access to global financial markets, pushing state-linked entities such as the IRGC to find alternative channels for transactions. Cryptocurrencies, particularly Bitcoin, have provided the IRGC with an effective way to bypass traditional banking restrictions and move money across borders. [1] [2] [7] [8]

The decentralized nature of cryptocurrencies makes them difficult to trace, allowing the IRGC and affiliated groups to use them for sanction evasion and illicit activities. In 2022, the U.S. Treasury's Office of Foreign Assets Control (OFAC) sanctioned two Iranian individuals, Amir Hossein Nikaeen Ravari and Ahmad Khatibi Aghada, both linked to the IRGC. These individuals were involved in cyber-related activities and used cryptocurrency to funnel funds into Iran through local exchanges. [2] [9]

See also

Related Research Articles

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<span class="mw-page-title-main">Nobitex</span> Cryptocurrency exchange in Iran

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References

  1. 1 2 3 4 5 Tayebi, A. (2022). Iran Approves Cryptocurrency Regulations, Raising Fears Of Skirting Sanctions. RFE/RL’s Radio Farda. Iran Approves Cryptocurrency Regulations, Raising Fears Of Skirting Sanctions
  2. 1 2 3 4 5 6 TRM. (2023). Iran’s Crypto Economy. TRM Insights. Iran's Crypto Economy
  3. ↑ Motamedi, Maziar. "Why is Iran turning to a new 'digital rial'?". Al Jazeera. Retrieved 2024-12-19.
  4. 1 2 3 4 Cryptocurrency.Law. (2023). Cryptocurrency Regulatory Developments in Iran: 2024 Update
  5. 1 2 3 4 5 Smith, Matt (2024-01-24). "Energy costs push bitcoin mining in Iran underground". AGBI. Retrieved 2024-12-19.
  6. ↑ "The rise of bitcoin in Iran: a response to inflation and repression - Summit". www.summit.io. Retrieved 2024-12-19.
  7. ↑ Motamedi, Maziar. "Why is Iran turning to a new 'digital rial'?". Al Jazeera. Retrieved 2024-12-19.
  8. ↑ "Iran and cryptocurrency: Opportunities and obstacles for the regime". Middle East Institute. Retrieved 2024-12-19.
  9. ↑ Team, Chainalysis (2022-09-15). "OFAC Sanctions Iranian Nationals For Their Role in Cyber Attacks". Chainalysis. Retrieved 2024-12-19.
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