US sanctions seek to isolate Iran from world finance and choke off its oil exports. Although more extreme than ever, US sanctions are nothing new, especially on Iran. This time, however, cryptocurrencies might offer a way out.
An Iranian Cryptocurrency
In response to 2018 US sanctions, Iran wants to create its own cryptocurrency much like the Petro, which is Venezuela’s attempt to circumvent US sanctions. Iran intended to use their state-run crypto to transact around the world, but the US put an abrupt end to those aspirations with a bill that forbids all entities and countries worldwide from helping Iran develop a cryptocurrency and from having any dealings with Iran’s crypto money.
Confined to its own borders, can a state-run cryptocurrency offer a viable solution to Iran’s money problems? Would an IranCoin offer relief from sanctions and a conventional Iranian currency that is dramatically dropping in value? Maybe for a short while, but a state-regulated currency does not address the fundamental issues of a currency that is centrally controlled. Whether digital or physical, the shortcomings will eventually become obvious once again.
State-run cryptocurrencies don’t address the underlying issues of money governed by a central authority. Iran doesn’t need crypto tech to create money when they could just start a new fiat currency. The currency’s policies will stay more or less the same and the government will remain in control of it. Whether their money is in the form of fiat or crypto, it can still be hyperinflated, with monetary policy dictated by a central authority.
The success of a new currency does not depend on whether it’s crypto or conventional. What matters are the monetary policies that are designed into the new money. The right policy designs will help to make Iran economically sound and sovereign. If the money policy remains status-quo, nothing will change in the long run.
Will existing cryptocurrencies help Iran?
Privacy coins such as Z-cash, Monero and others might help facilitate transactions across Iran’s borders if the users know how to stay hidden. Even with privacy coins, the weak link in hiding identity is human behavior.
Even though the use of Z-cash and Monero in Iran has risen since sancitions took effect, people who use those coins need a non-KYC (Know Your Customer) cryptocurrency exchange to turn it into something more widely accepted, without attaching it to an identity. Exchanges are increasingly difficult for Iranians to find, with BitMex, Bittrex and Binance recently excluding Iranians in order to comply with US sanctions.
Can Bitcoin Circumvent US Sanctions?
Blockstream, a bitcoin infrastructure company, has successfully deployed a Bitcoin Satellite network that allows almost worldwide access to bitcoin for free, beyond the ever-watchful eyes of the internet. The operative term here is, ‘almost worldwide.’ Either by coincidence or purposeful design, Iran is one of the few places on earth that does not receive the free bitcoin satellite signal from outer space. That leaves Iranians at the mercy of the internet, which is neither private nor anonymous, and is completely censorable.
Bitcoin does offer a solution, however, in the form of mining. When bitcoin is mined within Iran, there is no “foreign entity” that is helping Iran. There’s no 3rd party for the US to punish. This is just one clear example of the power of decentralized money. Spending their freshly-mined bitcoin across their borders might be a problem, but sanctions won’t stop Iranians from using it for transactions within Iran.
When a country uses bitcoin as a currency, the government cannot mess with its monetary policy. Bitcoin is out of all government’s hands. The government can and does control the internet, but if the Iranian government recognizes bitcoin mining as a path to sovereignty and increased GDP, they will encourage it.
Bitcoin mining can be thought of as a country’s natural resource. It holds the potential to increase the country’s wealth even if it’s financially disconnected from the rest of the world.
At $0.03 USD per kilowatt hour, Iranians have access to some of the cheapest electricity on earth, giving them a huge worldwide advantage in mining bitcoin. This offers a perfect opportunity to leverage one of their few worldwide advantages.
Bitcoin mining equipment is largely manufactured in China, who has no intention of changing its trade relations with Iran.
Speaking about US sanctions on Iran in a November, 2018 press briefing, Hua Chunying, a China foreign ministry spokeswoman said, “Under the current circumstances, we hope all parties can bear in mind the larger picture and fulfil their duties and choose to stand on the right side of history,” and that China will continue to “uphold the objective and responsible attitude to uphold the agreement”.
This bodes well for Iran to expand its bitcoin mining operations.