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Bitcoin in Iran - PT1: How civilian crypto use arises from and challenges US sanctions

The US decision to withdraw from the Joint Comprehensive Plan of Action (JCPOA) in 2016, has seen an intensification of economic conflict between Iran and the US. The latter’s complex and over-reaching trade and financial sanctions regimes have comprehensively isolated Iran from global commercial and financial markets, whilst Iranian policy has endeavoured to blunt the effect of sanctions through several illicit financial and commercial channels. The collapsing living standards of Iranian citizens, the shifting of labour to lower paid informal markets, and widespread shortages of medicines and humanitarian products suggests these efforts have been largely insufficient. Nonetheless, one would be forgiven for and accurate in placing the locus of this economic conflict between the halls of power of both Iran and the US.

The trend of crypto-currency mining and utilisation by Iranian civilians may be altering the locality of this economic conflict. The mining and utilisation of crypto currencies such as bitcoin in Iran seems widespread, with an estimated USD 1 billion generated by bitcoin mining within Iran and an estimated 70,000 unique IP addresses involved in direct crypto-currency transactions that derive from Iranian territory. Crypto-mines have spread across Iran, and exist in a variety of civil spaces including mosques, homes, and even in the basement of the Iranian stock exchange. The US government has taken note, and has stepped up investigations into companies suspected of facilitating crypto-transactions with individuals in Iran.

The economic warfare taking place is evidently seeping into civilian spaces, owing to the proliferation of crypto currencies, whose techno-financial infrastructure may facilitate the circumvention of sanctions. Crypto currencies are decentralised peer-to-peer online transactions systems and speculative financial assets, which unlike traditional banking and financial services, act without intermediaries to validate transactions. Such intermediaries are crucial in the enactment of financial sanctions, as they represent the financial and banking services that Iranians are cut off from. Furthermore, transactions are anonymized, supposedly making it harder for US authorities to identify sanctions violations. It seems the growth of crypto-currency related activities in Iran has been stimulated largely by the economic state of the country post 2016. As in Venezuela and Russia, crypto-currency adoption in Iran both results from and challenges the imposition of US economic power.

But how are crypto currencies specifically used in ways that challenge the efficacy of US sanctions and the goals of US policy makers? Those utilising crypto currencies to facilitate financial and commercial transactions with foreign individuals and entities undermine US sanctions which seek to restrict Iranian access to financial services and commercial markets. Many rely on crypto for the accessing of remittances from abroad, for instance. The anonymity afforded by crypto-currency technology, as well as the absence of intermediaries means they have been presented as a potential facilitator of imports to and exports from Iran.

It is likely that such predictions result more from an excitable adherence to the neo-libertarian ideologies underpinning decentralised digital currencies than an accurate appraisal of the facts on the ground. There is no evidence that crypto currencies are commonly being used to purchase goods other than those existing in the digital space. This is likely because international merchants weary of attracting the attention of US regulators will be reluctant to send goods to Iranian addresses, and at present most firms in Iran and abroad are either not interested or unequipped to work with digital coins. The potential remedies provided by cryptocurrencies to the shortages of humanitarian goods and productive capital that are squeezing the potential of Iran’s economy are more limited than proponents of digital currencies would like to admit.

The activities of crypto-currency miners (who use powerful computers to solve complex computational puzzles which when solved reward new bitcoins) present a different set of challenges to US economic sanctions, essentially creating a significant and highly profitable domestic market for Iranian oil. Indeed, the availability of cheap oil from Iran’s ailing oil sector is a major incentive for Iranians to turn to cryptocurrency mining, which is a highly energy intensive process. It is a seemingly widespread activity, in 2019 it was estimated that 4.5 percent of all bitcoin mining takes place in Iran. Considering that sanctions aim to both financially weaken Iranian society and starve Iran of its access to oil rents, it is notable that a potentially sizeable portion of Iran’s population can essentially access oil rents through crypto-currency mining. Once again, the emergence of crypto currencies in Iran results from and challenges the goals of the US economic siege.

Like in other states starved of oil rents by US sanctions, crypto currency related activities in Iran challenge the efficacy of US sanctions but are also resultant of their effects. This phenomenon is not part of any global crypto proliferation. It is part of the informal and illicit forms of economic activity societies turn to in response to US sanctions. This, however, has limited implications with regards to Iran’s economic plight. A key question here is the ways in which the Iranian state has reacted to this. As will be explored in the second part of this article, the proliferation of Crypto currencies presents a very particular dilemma for the Iranian state, and the government reaction again shows how crypto currencies alter structures of power as much as they are subject to them.

By Joshua Honey - MENA Analyst

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