Iran’s Cryptocurrency Ambitions: A Double-Edged Sword

Introduction

As Iran seeks to bypass international sanctions and boost its economy, it has turned to cryptocurrency as a potential solution. In August 2019, the country became the first to recognize crypto mining as a legal economic sector, and has since used cryptocurrency as reserves to pay for imports and exports.

Challenges of Cryptocurrency

Volatility and Energy Consumption

Cryptocurrency prices are notoriously volatile, making them risky for large-scale transactions. Iran’s energy-intensive mining process, which relies on fossil fuels, also raises concerns about the country’s already-strained power grid and budget. According to a 2021 study, Iran’s crypto mining activities consume around 10 million barrels of crude oil per year.

International Restrictions

Iran is under intense scrutiny from international regulators for its cryptocurrency activities, with countries like the US expressing concern over potential money laundering and terrorist financing. The Financial Action Task Force (FATF) has blacklisted Iran and North Korea, making it harder for individuals and entities to remain anonymous in cryptocurrency transactions.

Domestic Challenges

Regulatory Requirements

Iran’s own regulations pose additional challenges for crypto miners. The government requires them to sell their cryptocurrencies to the central bank at fixed prices, reducing profit margins and making the industry less attractive.

Ban on Trading

A ban on trading bitcoin and other cryptocurrencies mined overseas has further eroded Iran’s competitive advantage in the industry.

Conclusion

While cryptocurrency offers Iran an opportunity to evade sanctions and boost trade, it faces significant challenges that inhibit its growth and competitiveness. The Iranian government must navigate these obstacles to realize its ambitions, but doing so requires a delicate balance between supporting the industry while addressing concerns about volatility, energy consumption, and international regulations.

About the Author

Eric Lob is an associate professor in the Department of Politics and International Relations at Florida International University and a non-resident scholar with MEI’s Iran Program.