Iran issued a bill and sought comprehensive legislation to deal with the country’s cryptocurrency regulations. It passed a new bill to prohibit its citizens from making any transaction with cryptocurrency, such as Bitcoin. Although, they still support mining activities.
What Led To Such A Strategic Legislation?
Iran has been facing several random nationwide blackouts since January. Their President Hassan Rouhani said that the integral reason for the blackouts was the hydroelectricity power plants which couldn’t function efficiently due to drought. The President then announced a 4-month halt on all crypto mining activities, from May to 22 September 2021.
Iran usually has cheap abundant electricity (the charge is 5% of the UK). The cryptocurrency mining farms, most of which were unlicensed (about 85%) were alleged to drain almost 2 Gigawatts of energy, each day. It was noticed that single mining farms took up as much as 175 Megawatt of energy to run those power-hungry Bitcoin machines. For this reason, Iran had lifted many Bitcoin mining farms and confiscated several machines.
Iran is the mining site for approximately 4.5% of the world’s Bitcoins. According to data from Blockchain analytic firm Elliptic, Iran allows “the country to circumvent trade embargoes and earn hundreds of millions of dollars in crypto assets, which can be used to purchase imports and bypass sanctions”.
Iran has put an umbrella ban on payments via crypto but kept the mining activity thriving in the country with a more regulated framework. Why do you think they played such a strategic trick?
Due to the continued allegations on Iran’s nuclear activities, the United States has imposed sanctions on Iranian financial institutions and a total economic embargo (which means Iran’s import trade won’t be entertained). The price of oil has also depleted at a significant rate which has caused civil unrest. The latter phenomenon is also contributed by the recession the country has fallen into and the lack of employment. In such a situation of uncertainty, the financial arena sought refuge in Bitcoin mining. Bitcoin miners receive bitcoins in return for mining and adding them to the blockchain, this was looked upon as fuel to recover the financial state of the country.
In 2019, Iran recognized the benefits of bitcoin mining. However, lately, they have launched tightly regulated rules and high tariffs on electricity for bitcoin miners. Miners in Iran are required to identify themselves and get state-approved licenses. Here, miners also need to sell all their Bitcoins transacted after mining to the Central Bank of Iran. The new bill allows the continuation of issuing licenses to set up new farms and carry on the Bitcoin mining activities. It has set up ‘Iranian Majlis’ which is defined as a plan to foster “support for cryptocurrency mining and organizing the domestic market for exchanges.”
Payment In Cryptocurrency Is Banned Provided Exceptions
Amidst certain liberties at cryptocurrency regulations, the bill issued has put a complete ban on using crypto assets or crypto coins such as Bitcoin as a mode of payment in the Islamic Republic. Besides commodity payments, domestic transactions are also prohibited under this draft law. However, Iran is preparing to launch its personalized cryptocurrency, or may also call it Central Bank Digital Currency (CBDC) or Govcoins. Iranian economic and regulatory authorities have no objection if payments and transactions are made with their CBDC.
This scheme of centralizing the economy might be a plausible cause of their decision to prohibit every other cryptocurrency. This adds up to the gradual breakdown of the whole decentralized cryptocurrency system in the global market. Iran’s Economy and Finance Minister Farhad Dejpasand stated that the government cannot interfere with the development of crypto technologies for too long. This uncertainty and bridge between avoiding the volatility of the decentralized crypto technology and risking to avoid the development of the technology for the country’s growth have put many such economic leaders into scepticism.