The Iranian government, which had enacted a total ban on crypto in April 2018, now appears not only willing to accept it, but also promote it. An estimated 50 blockchain-related ventures are reportedly now running in Iran as well as numerous legal crypto mining operations and licensed crypto exchanges.
Yaya Fanusie of the Washington-based Foundation for Defense of Democracies recently described the Central Bank of Iran or CBI as “encouraging experimentation, funding some blockchain startups directly and even recently drafting legislation that allows crypto-currency mining and trading.”
In late January, preliminary government approval was also granted for the creation of an Iranian gold-backed crypto known as Paymon or Peyman. Four banks signed on, and it is now scheduled to start circulating later this year.
It is not quite a complete crypto green light, however. Julie Myers Wood, a former Assistant Secretary of US Homeland Security and now CEO of NYC-based investigative and compliance consultancy Guidepost Solutions, told Asia Times that while the country recently lifted its crypto ban, the CBI said earlier this year that using crypto as a method of payment “within the country” was still prohibited. “It is not clear how that discrepancy will be resolved,” Wood said.
But when it comes to using crypto-currency – or more specifically, Bitcoin – there is no such ambiguity. Iran, more out of economic necessity than technical curiosity, is embracing Bitcoin as a sanctions-breaking store of value.
As Iran’s 80 million citizens face increasingly tough economic times and near runaway inflation, many have felt compelled to either buy gold or acquire large amounts of Bitcoin. Iranian government estimates on the total amount spent on crypto in Iran, to date, range from $2.5 billion to perhaps more than 10 times that amount.
“Bitcoin specifically is the crypto-currency for which the ‘store of value’ – the gold 2.0 – use case has gained traction,” said Lisa Ellis, a partner and financial technology analyst at NYC-based MoffettNathanson LLC. “Bitcoin has far more history, scale and liquidity than other systems, which make it more stable and durable. As a result, if Iranians were to embrace crypto-currencies as a means to protect their savings and assets against inflation, then Bitcoin would be the answer.”
Ellis adds that although legalizing crypto “is certainly an important enabler of their use as a store of value … mainly because then exchanges are able to operate legally,” it also gives government a high degree of oversight and control. “The open-source nature of crypto [makes] it easy for the government to find them and shut them down just by monitoring the readily-available activity on various crypto-networks,” said Ellis.
This doesn’t mean that Iran’s government has not witnessed the same crime issues that have plagued the crypto sector globally and, reportedly, Tehran also had to issue a number of urgent crypto warnings.
“As Iranians increasingly favor crypto-currencies, so have the scams. In recent months, Iran’s Computer Emergency Response Team Coordination Center has issued several warnings to the public concerning crypto-jacking, pyramid schemes, and Coinhive, among others,” reported “Iransource” a blog hosted by the Washington-based Atlantic Council.
Washington, too, is monitoring the Iranian crypto scams.
Last year, as the US Department of the Treasury’s Office of Foreign Assets Control (OFAC) imposed harsh sanctions, shutting off Iran’s purchases or acquisitions of US dollar banknotes, and Iran’s trade in gold and precious metals and, among other things, it added the Iranian crypto sector to its sanctions blacklist. The California-based CipherTrace blog reported that “in an unprecedented move,” the OFAC also started publicizing bad apples from the Iranian crypto sector and making public their crypto wallet addresses too.
CipherTrace says OFAC did this in November 2018 to two Iranians for allegedly exchanging “Bitcoin ransom payments into Iranian Rial on behalf of local hackers involved in the SamSam ransomware scheme that hit over 200 known victims.” SamSam hackers collected about $6 million in ransom payments from victims worldwide.
The Paris-based Financial Action Task Force (FATF) – an intergovernmental organization that develops anti-money laundering policies and financing of terrorism countermeasures – says it is increasingly concerned about Iran’s use of crypto to help fund terrorist groups. A detailed FATF action plan to address perceived deficiencies in Iran’s financial system was created months ago.
“If Iran fails to complete the FATF reforms (by mid-2019) and (FATF anti-terrorism financing) counter-measures are restored, the already intense scrutiny placed on Iranian banks will be even further heightened,” said Julie Myers Wood. “Increased supervision of the traditional banking system could accelerate development of crypto-related products and offerings as an alternative, or it could cause the (CBI) to renew a crackdown on crypto-related products.”
Still, due to the harsh economic climate, the Iranian government may have decided that the time has come for it to pursue every possible option. The dire state of the economy and mounting political pressure expressed on the streets of Iran has clearly compelled Iran’s leadership to embrace crypto.
“An (Iranian government-backed) ‘Crypto-Rial’ is not only a possibility, but an inevitability,” Dave Jevans, CEO of CipherTrace, told Asia Times. “A sovereign-issued crypto-currency will allow the regime to enable crypto-currency flows within its borders and with its partner countries while maintaining control for security and taxation purposes.”
Such a crypto-currency, says Jevans, will also “allow the regime to regulate and monitor global currency flows.” More importantly, thinks Jevans, it will enable Iran to evade traditional monetary controls that effect sanctions. And what then?
This story is far from over.