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At the end of last month, Iran Daily, the country’s official government newspaper, reported that the administration had changed its cryptocurrency legislation to make digital assets “used solely to finance imports at a time of increased pressure on the country’s normal use of hard currencies.”
In practice, this means that bitcoin and other cryptocurrencies that are officially mined under government supervision will have to be provided directly to the Central Bank of Iran (CBI) within an authorized limit, based partially on the amount of subsidized energy the miner uses.
“Miners should provide the original cryptocurrency directly and within the authorized limit to the channels introduced by the CBI”, to Iran Daily.
The report did not clarify how the CBI would buy the cryptocurrency or at what rate, but the government is likely to buy bitcoin at below-market prices.
This latest update of Iranian policies is a key aspect of what have become the most interesting cryptocurrency landscapes in the world:
- Last year, Iran legalized cryptocurrency mining and instituted heavy rules to control the practice.
- With access to relatively cheap oil reserves and electricity, Iran can offer heavily subsidized energy to miners and offset much of the cost of mining cryptocurrencies such as bitcoin for companies that follow their rules.
- Alternatives to fiat currencies such as the USD are attractive to Iranian powers, as economic sanctions from the United States and other countries largely prevent them from trading with the world’s reserve fiat currency.
- As the Iranian rial suffers from hyperinflation, its people are looking for an alternative store of value.
To get a clearer picture of what the latest developments mean for Bitcoin in Iran, I contacted Ziya Sadr, a Bitcoiner who lives in Tehran and has never left the country because the government “won’t give [him] a passport. “(We passed Sadr the Lightning Torch in April 2019.) I also spoke to Omid Alavi, CEO of Vira Miner, which holds a mining license and operates a legal bitcoin mining farm in Iran.
Is Iran Building a Bitcoin Reserve?
Because the latest amendment forces regulated miners to provide their BTC to the central bank, most of the The Bitcoin community speculated that the country is building a reserve of bitcoin. Bitcoin would be a powerful tool to allow it to give up its failing fiat currency and circumvent international sanctions. But both Alavi and Sadr rejected this idea.
“Under no circumstances is the government interested in acquiring bitcoin and this approach is not limited to Iran,” Alavi said. “Most of the world’s central banks are not interested in accepting the risks and fluctuations of bitcoin.”
Sadr echoed that recovery, pointing out that he has no insider knowledge of CBI’s actual plans.
“I don’t think the central bank will touch bitcoin in any way,” Sadr said. “The system will only provide rates and stuff and the bitcoin will be transferred directly from the sender to the recipient.”
Sadr speculated that the government will establish a system for managing cryptocurrencies similar to its forex management system, known as NIMA. CBI controls the NIMA exchange rate and facilitates the exchange of foreign currencies, but does not constitute a reserve of foreign currencies through it.
Does the new rule discourage Bitcoin miners?
Sadr noted that the latest amendment could solve a problem for regulated bitcoin miners in the country who face government challenges when trying to sell the BTC they receive as a reward. Rather than seeing it as a limit, why them to have selling their bitcoin to the government to finance imports – he suggested it was an advantage because they now had a clear path to sell cryptocurrency in an approved way. However, this would not apply to most of the bitcoin miners operating in Iran and may not have much of an impact overall.
“Most miners don’t have official, regulated mining operations, so it might not be of interest to most miners,” Sadr said. “Some of the very few miners who are looking to do their mining officially and in a fully regulated way may need this. [new rule]. “
Alavi, on the other hand, expects the latest amendment to deter cryptocurrency mining operations in the country.
“Due to the high price of electricity and gas for the mining of cryptocurrencies in Iran, the result of the modification of this decree will be the reduction of bitcoin production in Iran, because no miner is interested in supplying his bitcoin to the government at this rate, “he said.
Alavi added that the bitcoin mining industry in Iran is “very low and limited”, reporting that there are only 14 legal mining centers in the country.
The perspective of Bitcoin in Iran
Despite the feeling that the government itself is not interested in hoarding bitcoin and that the legal mining industry is small, Sadr is optimistic about Bitcoin’s growth among everyday Iranians. He pointed to the fundamental economic problems in the country as the main drivers, noting that smartphones can cost Iranians eight or nine months’ salary. He shared anecdotal evidence that more people are using bitcoin to send remittances to family members in Iran and to conserve their value, deviating from more traditional stores like gold that can make them the targets of criminals.
“As far as income and revenue are concerned, you are better off with bitcoin than fiat currency here in Iran and people are understanding that now,” Sadr said. “I predict that bitcoin will take a much larger share of such economic actions … As for inflation, people have no other way than Bitcoin.”
However, Sadr noted that he does not see an official “Bitcoin industry” in the country and that the exchanges and mining activities that exist are best described as individuals who have opted for the safe haven rather than a formal group.
This perspective seems reinforced by recent government regulations, which simultaneously formalize the production and subsidization of cryptocurrencies, but also limit their use with highly restricted supervision. This dynamic appears to have stifled any burgeoning bitcoin industry that might have sprung up in an area so ripe for adoption rather than encouraging it.
“To date, the Iranian government has shown no practical interest in supporting the cryptocurrency mining industry and has only passed one or two weak resolutions, most of which were propaganda,” Alavi explained. “In general, the cost of mining bitcoin in Iran is very high and has no economic justification. Currently, the volume of bitcoin mined is so low that it cannot meet a factory’s exchange needs. “
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