The value of Bitcoin, the dominant online currency in the world, is treacherously unpredictable. But it is an emerging front in the economic war between Washington and Tehran, Iran’s economy has been hobbled by banking sanctions that effectively stop foreign companies from doing business in the country. But transactions in Bitcoin, which are difficult to trace, could allow Iranians to make international payments while bypassing the American restrictions on banks.
In the past, the threat if United States sanctions has been enough to squelch most business with Iran, but the anonymous payments made in Bitcoin could change that. While Washington could still monitor and intimidate major companies, countless small and midsize companies could exploit Bitcoin and other cryptocurrencies to conduct business under the American radar. The United States Treasury, well aware of the threat, is attempting to bring Bitcoin and the others into line. In recent weeks, in response to an internet fraud case originating from Iran, the Treasury imposed sanctions on two Iranians and the Bitcoin addresses, or so called “wallets”, they had used for trading in the currency.
The Treasury also has warned digital marketplaces that Buy and Sell Bitcoin and companies that sell computers used to process Bitcoin transactions that they should not provide services to Iranians. Several well-known trading sites are now blocking buyers and sellers from Iran. Some have confiscated money belonging to clients based in Iran. Treasury in my opinion will continue to aggressively pursue Iran and other in their opinion rogue regimes attempting to exploit digital currencies.
But by their nature, cryptocurrencies are uncontrolled by any person or entity. At best, efforts to regulate or monitor trade in them are episodic, whack-a-mole affairs. With Bitcoin and other cryptocurrencies, there is simply no way to duplicate the banking sanctions that have proved so damaging to the Iranian economy.
Bitcoin transactions are recorded on a digital ledger or database known as the blockchain, maintained communally by many independent computers. The system is designed explicitly to avoid central banks and large financial institutions any kind of influence or control. Like emails delivered without going through a central postal service, the computer network maintaining for example Bitcoin records enables the movement of money without going through any central authority.
The Iranian government has been slow to recognize the potential sanctions evading possibilities of Bitcoin. But it is now considering the establishment of exchanges to facilitate trading. Despite the failure of Venezuela’s state backed cryptocurrency, the Petro, Iran’s central bank said recently that it was seriously considering creating something similar, possibly called the Crypto-Rial, which is named after the national currency, the rial.
Still, Iran’s venture into Bitcon pales in comparison to what has been happening in the former Soviet republic of Georgia, where thousands of people jumped into the cryptocurrency business.
For now, Iran seems to be taking its first baby steps towards becoming a possible global center for mining Bitcoins. Because of generous government subsidies, electricity – the energy for the computers needed to process cryptocurrency transactions – costs little in Iran. It goes for about six-tenths of a cent per kilowatt-hour, compared with an average of 12 cents in the United States and 35 cents for example in Germany. In recent months, dozens of foreign investors from Europe, Russia and Asia have considered moving their mining operations to Iran and other low-cost countries like Georgia.
Late in January, Britain, France and Germany introduced a financial mechanism in the form of a company called “Instex” that would essentially allow goods to be bartered between Iranian companies and foreign ones without direct financial transactions or using the dollar. By avoiding the American banking system and currency, the hope is that European companies and others will feel confident that they can do business with Iran without being subject to the sanctions.
As with all great challenges, necessity leads to innovation