Bitcoin Is Becoming More Valuable To Iranians Amid Tensions With US
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Bitcoin Is Becoming More Valuable to Iranians Amid Tensions With US
As the US continues to impose economic sanctions on Iran, the Islamic Republic is turning to Bitcoin as a way to circumvent the restrictions and access the global market. Iran has legalized Bitcoin as a reserve currency and is encouraging its citizens and businesses to mine and use the cryptocurrency.
Bitcoin is a decentralized digital currency that operates on a peer-to-peer network without any intermediary or central authority. Bitcoin transactions are verified by network nodes and recorded in a public ledger called a blockchain. Bitcoin can be exchanged for other currencies, goods, and services, as well as used to pay for imports and exports.
Iran has been facing US sanctions since 1979, when the Iranian Revolution overthrew the US-backed Shah and established an Islamic republic. The sanctions have intensified over the years, especially after Iran's nuclear program was revealed in 2002. The US accuses Iran of pursuing nuclear weapons and supporting terrorist groups in the region, such as Hezbollah in Lebanon and Hamas in Palestine. Iran denies these allegations and claims its nuclear program is for peaceful purposes.
The US sanctions have crippled Iran's economy, cutting off its access to international banking systems, oil markets, and foreign trade. According to the International Monetary Fund (IMF), Iran's gross domestic product (GDP) contracted by 6.8% in 2019 and 5% in 2020. The inflation rate reached 41% in 2019 and 30% in 2020. The unemployment rate was 16.8% in 2019 and 12.2% in 2020. The Iranian rial, the national currency, has lost more than 80% of its value against the US dollar since 2018.
In response to these challenges, Iran has recognized that Bitcoin mining represents an attractive opportunity for a sanctions-hit economy suffering from a shortage of hard cash, but with a surplus of oil and natural gas. Bitcoin mining is the process of creating new bitcoins by solving complex mathematical problems using specialized computers. The process consumes a lot of electricity, which Iran can provide cheaply from its abundant fossil fuel resources.
According to a study by blockchain analytics firm Elliptic, around 4.5% of all bitcoin mining takes place in Iran, allowing the country to earn hundreds of millions of dollars in cryptocurrencies that can be used to buy imports and lessen the impact of sanctions. The study estimates that at its current level of mining, Iran's bitcoin production would amount to revenues close to $1 billion a year.
The Iranian government has officially recognized crypto mining as an industry in recent years, offering it cheap power and requiring miners to sell their mined bitcoins to the central bank. The central bank prohibits the trading of bitcoin and other cryptocurrencies mined overseas, although they are widely available on the black market. The central bank also allows cryptocurrencies mined in Iran to pay for imports of authorized goods.
By mining and using bitcoin, Iran is effectively selling its energy reserves on the global markets, using the bitcoin mining process to bypass trade embargoes. Iran-based miners are paid directly in bitcoin, which can then be used to pay for imports - allowing sanctions on payments through Iranian financial institutions to be circumvented.
Bitcoin is becoming more valuable to Iranians amid tensions with the US, as it offers them a way to preserve their wealth, access global markets, and resist economic pressure. Bitcoin also has geopolitical implications, as it challenges the US dollar's dominance as the world's reserve currency and undermines the effectiveness of sanctions as a foreign policy tool.
Sources:
Iran uses crypto mining to lessen impact of sanctions, study finds Reuters
Bitcoin: How Iran Bypasses US Sanctions Lebanon Law Review
Iran Is Pivoting to Bitcoin - Vice aa16f39245