Late last month, Iran Daily, the official newspaper of the country’s government, reported that the administration had changed its cryptocurrency law to use digital assets “solely for financing imports at a time of increasing pressure on the normal use of hard currency in the country.”
In practice, this means that bitcoin and other cryptocurrencies that are officially mined under government supervision must be delivered directly to the Central Bank of Iran (CBI) within an allowable limit, based in part on the amount of subsidized energy the miner uses.
“The miners are supposed to deliver the original cryptocurrency directly and within the allowable limit to the channels introduced by the CBI,” per Iran Daily.
The report did not clarify how the CBI would buy the cryptocurrency or at what rate, but it is likely that the government will buy bitcoin at lower than market prices.
This latest update to Iran’s policy is an important aspect of what have become the world’s most interesting cryptocurrency landscapes:
- Last year, Iran legalized cryptocurrency mining and set heavy-handed regulations to master the practice.
- With access to oil reserves and relatively cheap electricity, Iran can provide heavily subsidized power to miners and offsets much of the cost of mining cryptocurrencies such as bitcoin for companies that play by their rules.
- Alternatives to fiat currencies such as the USD are attractive to the powers of Iran as economic sanctions by the US and other countries largely prevent the country from conducting transactions with the world’s reserve fiat currency.
- Since the rial of Iran is suffering from hyperinflation, so are the people 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 of the government [him] a passport. ”(We passed Sadr’s Lightning torch back in April 2019.) I also spoke to Omid Alavi, the CEO of Vira Miner, who has a mining license and operates a legal bitcoin mining farm in Iran.
Is Iran Building a Bitcoin Reserve?
Since the latest amendment forces regulated miners to provide their BTC to the central bank, much of the The Bitcoin community speculated that the country is building a bitcoin reserve. Bitcoin is said to be a powerful tool for getting it out of its failing fiat currency and bypassing international sanctions. But both Alavi and Sadr rejected that idea.
“The government is certainly not interested in acquiring bitcoin and this approach is not limited to Iran,” Alavi said. “Most central banks in the world are not interested in accepting the risks and fluctuations of bitcoin.”
Sadr echoed that opinion, underlining that he has no prior knowledge of the CBI’s actual plans.
“I don’t think the central bank will touch bitcoin in any way,” Sadr said. “The system only gives rates and stuff and the bitcoin is transferred directly from sender to receiver.”
Sadr speculated that the government will set up a cryptocurrency management system similar to the forex management system known as NIMA. CBI monitors the NIMA exchange rate and facilitates the exchange of foreign currency, but does not use it to build up a reserve of foreign currency.
Does the new rule discourage Bitcoin Miners?
Sadr noted that the latest change could solve a problem for regulated bitcoin miners in the country who face challenges from the government when trying to sell the BTC they receive as a reward. Rather than seeing it as a limitation – because they to have to sell their bitcoin to the government to finance imports – he suggested it was an advantage as they now had a clear way to sell cryptocurrency in an approved way. However, this wouldn’t apply to most of the bitcoin miners operating in Iran, and it may not have much of an impact in general.
“Most miners don’t do official and regulated mining activities, so it may not be of interest to most miners,” Sadr said. “Some of the few miners who are trying to do their mining operations officially and in a fully regulated way may need it [new rule]. “
Alavi, on the other hand, expects the latest change to discourage cryptocurrency mining in the country.
Due to the high price of electricity and gas for cryptocurrency mining in Iran, the result of changing this decision will reduce bitcoin production in Iran as no miner is interested in giving their bitcoin to the government at this rate. providing, ”he said.
Alavi added that the bitcoin mining industry in Iran is “very low and limited,” and reports that there are only 14 legal mining centers in the country.
The Bitcoin Outlook in Iran
Despite feelings that the government itself is not interested in building bitcoin and that the legal mining industry is small, Sadr is optimistic about Bitcoin’s growth among everyday Iranians. He pointed to the country’s fundamental economic problems as the main drivers and noted that smartphones can cost Iranians eight or nine months of pay. He shared anecdotal evidence that more people are using bitcoin to transfer money to family members in Iran and to store their value, deviating from more traditional stores like gold, which can make them targets of criminals.
“In terms of income and earnings, you’re better off with bitcoin than fiat currency here in Iran and people now understand this,” Sadr said. “I predict that bitcoin will take a much higher proportion of such economic actions … With regard to inflation, people have no other way than Bitcoin.”
Sadr noted, however, that he does not see an official “Bitcoin industry” in the country and that the exchanges and mining companies out there are better described as individuals who have chosen the safe haven, rather than a formal group.
These prospects seem to be bolstered by recent government regulations, which simultaneously formalize the production and subsidization of cryptocurrencies, but also limit their use with very limited oversight. This dynamic seems to have stifled any thriving bitcoin industry that may 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 crypto mining industry and has only passed one or two weak resolutions, most of which were propaganda,” Alavi explained. “In general, the costs of bitcoin mining in Iran are very high and have no economic justification. Currently, the volume of bitcoin mined is so low that it cannot meet a factory’s foreign exchange needs. “