Iran Turns to Bitcoin Strategy to Dodge US Sanctions

US sanctions have accelerated Iran’s use of cryptocurrencies such as bitcoin. (Reuters)
US sanctions have accelerated Iran’s use of cryptocurrencies such as bitcoin. (Reuters)
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Iran Turns to Bitcoin Strategy to Dodge US Sanctions

US sanctions have accelerated Iran’s use of cryptocurrencies such as bitcoin. (Reuters)
US sanctions have accelerated Iran’s use of cryptocurrencies such as bitcoin. (Reuters)

In narrow terms, the economic sanctions imposed by the United States on Iran in the last two years have been effective, shrinking the Iranian economy by 10 to 20 percent. But they have also accelerated Iran’s use of cryptocurrencies such as bitcoin, which are increasingly used by the Iranian government and public to evade legal barriers. This has led to an attempted crackdown on bitcoin by international regulators—but the cryptocurrency industry is proving more nimble than the enforcers of sanctions, reported Foreign Policy.

The Iranian government has long had an interest in using cryptocurrencies to support international trade outside of the traditional banking system. In July 2018, President Hassan Rouhani’s administration declared its intention of launching a national cryptocurrency.

One month later, a news agency affiliated with the Central Bank of Iran outlined multiple features of the national cryptocurrency, stating that it would be backed by the rial—Iran’s national currency.

Multiple blockchain projects—developing the underlying technology for cryptocurrencies—were revealed by the central bank at a digital payments conference last year, one of which is reportedly already being tested by four Iranian banks (three of which are under sanctions).

Cryptocurrency transactions are already popular with the Iranian public, according to various reports. In some interviews, people have described bitcoin as the only way to get money out of Iran.

Cryptocurrency mining activity, which is a heavy computational process that generates, or “mines,” new cryptocurrency, is also significant in Iran.

Lured by the cheap cost of electricity in the country, and the devaluation of the Iranian rial, several bitcoin miners set up operations in Iran in 2018. In 2019, a survey conducted with 1,650 Iranians using bitcoin showed that 25 percent of respondents made $500 to $3,000 per month working with cryptocurrency.

The Iranian government also appears to have recognized the value in mining as an economic sector. In August 2019, after a month of harsh crackdowns on mining activity for abusing cheap electricity, the cabinet issued a regulation that recognized mining as a legal sector in the economy.

Interestingly, Iran also appears to have attracted interest from other countries willing to collaborate via blockchain platforms.

In 2017, Sweden reportedly authorized a local start-up to invest in firms on the Iranian stock market by using bitcoin. In November 2018, Iranian and Russian blockchain industry personnel signed an agreement for cooperation in developing Iran’s blockchain industry, with a stated aim to address challenges arising from sanctions. In 2019, Iran’s Trade Promotion Organization conducted negotiations on the use of cryptocurrencies in financial transactions with representatives of eight countries, including Switzerland, South Africa, France, England, Russia, Austria, Germany and Bosnia-Herzegovina.

In 2016, as per the Iran nuclear deal, the United Nations and European Union lifted sanctions on Iran. The EU recently launched Instex, a transactions channel between Europe and Iran.

Multiple obstacles still exist, however, before Iran can fully harness the power of cryptocurrencies. The room for anonymity is steadily shrinking for cryptocurrency transactions as formal identification of customers through “know your customer” (KYC) compliance rises globally.

In 2018, the US Treasury Department’s Office of Foreign Assets Control added two Iranian individuals and their bitcoin addresses to its Specially Designated Nationals List. According to forensic analysis by the Treasury Department, more than 7,000 bitcoin transactions valuing millions of dollars had been processed by these addresses. Apart from other criminal activity and numerous scams, cryptocurrency usage by regimes such as Venezuela and Iran has been one of the driving factors for heavy regulation of the sector.

Apart from country-specific regulations that mandate financial compliance, the Financial Action Task Force’s standards were set in 2019 and are now enforced across 37 member countries. These standards impose full KYC compliance at the level of virtual asset service providers, as well as a “travel rule” that requires both originators and beneficiaries of cryptocurrency transactions to identify and report suspicious information.

These regulations effectively exclude Iran from major cryptocurrency exchanges. This has tilted the Iranian cryptomarket toward local exchanges, where price premiums on the currency are higher. Iran is thus losing out on its competitiveness in mining compared with other jurisdictions. While electricity costs are lower, other costs related to mining, such as hardware and operations, are much higher in Iran. Meanwhile, there is still regulatory uncertainty over the future of cryptocurrency within Iran.

Despite these challenges, there are new developments in the world of cryptocurrency that may open up new possibilities for the Iranian government and people to evade sanctions. One significant development is the rise of central bank digital currencies, which are the governmental take on cryptocurrencies—central banks issuing natively digital money.

China and Russia have notably been working on these projects for some time, and the Chinese sovereign coin, or “digital yuan,” is expected to be launched this year. The implications for international sanctions are vast. First, these projects inevitably run on private blockchains that provide no traceability to outside countries the way a bitcoin network does. The second is that these instruments are completely outside the purview of current US-led global financial architecture. Countries that are still open to cooperating with Iran could easily explore avenues through the use of such sovereign coins.

Foreign Policy



US, Iran Agree to Hold 6th Round of Indirect Talks

Vehicles of the Iranian delegation leave an entrance of the Omani embassy in Rome where nuclear talks between Iran and the United States were held (Reuters)
Vehicles of the Iranian delegation leave an entrance of the Omani embassy in Rome where nuclear talks between Iran and the United States were held (Reuters)
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US, Iran Agree to Hold 6th Round of Indirect Talks

Vehicles of the Iranian delegation leave an entrance of the Omani embassy in Rome where nuclear talks between Iran and the United States were held (Reuters)
Vehicles of the Iranian delegation leave an entrance of the Omani embassy in Rome where nuclear talks between Iran and the United States were held (Reuters)

US President Donald Trump said on Tuesday that Iran’s recent posture in nuclear negotiations has grown “much more aggressive,” just days before the sixth round of indirect talks is set to take place on Sunday in Muscat, Oman.

While Trump said the next round of talks would take place on Thursday, a senior Iranian official and a US official said Thursday was unlikely.

Iran and the US have already held five rounds of talks mediated by Oman. And while Iranian Foreign Ministry spokesperson Esmail Baghaei said Tehran and Washington will hold the newest round of talks in Muscat next Sunday, Iran’s top negotiator, Foreign Minister Abbas Araghchi, will be attending the annual Oslo Forum in Norway on Thursday, his office said.

“The US proposal is not acceptable to us. It was not the result of previous rounds of negotiations. We will present our own proposal to the other side via Oman after it is finalized. This proposal is reasonable, logical, and balanced,” Baghaei said.

“We must ensure before the lifting of sanctions that Iran will effectively benefit economically and that its banking and trade relations with other countries will return to normal,” he added.

Trump said that the next round of talks could make it clear if a nuclear deal is possible to avoid military action.

He told reporters at the White House on Monday that Iran appeared to have rejected a key element of an American proposal aimed at breaking the deadlock in the negotiations over the future of the country’s nuclear program.

“They’re just asking for things that you can’t do,” Trump said at the end of an economic event with business and Wall Street leaders. “They don’t want to give up what they have to give up. You know what that is: They seek enrichment.”

Trump also told reporters: “We can’t have enrichment. We want just the opposite, and so far, they’re not there. I hate to say that, because the alternative is a very, very dire one.”

At the same White House event, Trump said he had a telephone conversation on Monday evening with Israeli Prime Minister Benjamin Netanyahu.

One day prior to his phone call with the Israeli PM, Trump and his entire top foreign policy team huddled in Camp David for hours on Sunday to discuss US strategy on the Iran nuclear crisis and the war in Gaza, two US officials and another source with knowledge told Axios.

A senior US official told Axios the president sees both crises as intertwined and part of a broader regional reality he is trying to shape.

Tehran has defended its right to enrich uranium as “non-negotiable,” while Washington called any Iranian enrichment a “red line.”

Meanwhile, Washington's ambassador to Israel, Mike Huckabee, told Bloomberg on Tuesday that Trump will not allow Iran to enrich uranium. Huckabee said “there’s nothing’s off the table,” when asked whether military action was on the table if negotiations failed.

On Tuesday, Iranian Foreign Minister Abbas Araghchi reiterated criticism of a plan by European powers (France, Germany, the UK) and the US to adopt a resolution at the IAEA meeting that would accuse Tehran of non-compliance with nuclear obligations.

“Any ill-considered and destructive decision in the Board of Governors against Iran will be met with an appropriate response,” Araghchi said during a phone call with Japanese Foreign Minister Takeshi Iwaya.

The Japanese Foreign Ministry then said Iwaya and Araghchi had a candid exchange of views on Iran’s nuclear issue.

“Iwaya emphasized that Japan strongly hopes for a peaceful resolution of the issue and that Iran should not miss the opportunity for an agreement between the United States and Iran,” the Ministry statement said.

In Tehran, Iranian lawmakers said in a statement on Tuesday that the United States and Israel are seeking to turn nuclear talks into a “strategic trap” for Iran.

“The US is not serious in negotiations at all. It has set the goal of talks as imposing its demands and has adopted offensive positions that are diametrically opposed to Iranians' inalienable rights,” the statement from parliamentarians said.

“The only acceptable deal is one that permanently lifts all sanctions with the aim of achieving economic benefits for Iran,” lawmakers added in their statement.