Throughout the past year, the government of Iran has actively explored the usability of Bitcoin in circumventing U.S. sanctions in dealing with its strategic allies such as Russia.
Speaking with The New York Times, Ziya Sadr, a Bitcoin expert who has engaged in discussions with Iranian officials, said that the decentralized nature of the dominant cryptocurrency has allowed it to become a widely utilized currency in the region.
My friend is booking hotels in Iran that require a deposit. The note in the email reads: "Payments in cryptocurrency might sound a bit strange, but the severe American sanctions on Iran's banking system have left us with not many choices."
— Leo Weese 獅 草地 (@LeoAW) July 19, 2018
Bitcoin Cannot be Sanctioned and Governments Recognize it
In November 2018, the U.S. Treasury released an official statement, warning Iran and other sanctioned nations from utilizing cryptocurrencies to process international payments.
At the time, Treasury Under Secretary for Terrorism and Financial Intelligence Sigal Mandelker, said:
We are publishing digital currency addresses to identify illicit actors operating in the digital currency space. Treasury will aggressively pursue Iran and other rogue regimes attempting to exploit digital currencies and weaknesses in cyber and AML/CFT safeguards to further their nefarious objectives.
The U.S. Treasury issued a stern warning against the possibility of utilizing cryptocurrencies like Bitcoin in evading sanctions, whose transactions are processed on a decentralized blockchain network that cannot be controlled by a central entity.
Structurally, the Bitcoin blockchain network is not optimized for private or anonymous transactions. Although the identity behind wallets or transactions cannot be revealed, the public blockchain enables analytics firms and exchanges to tag certain wallets or transactions.
However, suspicious transactions or addresses can only be traced if they are made public or go through regulated exchanges. In purely peer-to-peer transactions, it is not possible to trace transactions down.
For instance, if an Iranian business was to send Bitcoin to a Russian entity, there is not a way to track the transactions unless the identity behind the address is known.
“There is no other way for us, Bitcoin cannot be sanctioned by anyone, by the U.S. government or any other government or other financial entities,” Ziya Sadr said.
Currently, the Iranian government is said to be exploring various methods of using cryptocurrencies to settle international payments.
According to Abolhassan Firouzabadi, an Iranian official, the government may create an exchange or a central bank-issued cryptocurrency to evade international sanctions.
The sanctions imposed by the U.S. on Iran has prevented the country and the nation’s businesses from obtaining financial services. Isolated from the SWIFT network, Iran is unable to send or receive money from other countries.
Bitcoin Ban Lifted
Earlier this week, Aljazeera reported that the government of Iran officially lifted its blanket ban on Bitcoin, possibly to pave the path towards a central bank-issued cryptocurrency.
Previously, Mohammad Reza Pourebrahimi, Iran’s Parliamentary Commission of Economic Affairs (IPCEA) head, reportedly said that Iranian authorities discussed with Russian authorities on the prospect of using cryptocurrencies to bypass the dollar.
“[IPCEA has already] obliged the Central Bank of Iran to start developing proposals for the use of cryptocurrency. Over the past year or two, the use of cryptocurrency has become an important issue. This is one of the good ways to bypass the use of the dollar, as well as the replacement of the SWIFT system. They [Russian authorities] share our opinion. We said that if we manage to promote this work, then we will be the first countries that use cryptocurrency in the exchange of goods,” Reza said.
Although it remains uncertain whether the strategic allies of Iran are planning to rely on cryptocurrencies for internal payments in the short-term, reports suggest that Iran is leaning towards cryptocurrencies as an answer to international sanctions.