Cryptocurrencies on the rise in Iran

The popularity of cryptocurrencies in Iran appears to be on the rise amid mounting economic anxiety in the country.

Experts say Iranians are increasingly turning to cryptocurrencies such as bitcoin to circumvent sanctions leveled against their country by the U.S. and other world powers.

While investors all over the world have purchased large amounts of digital currencies, their moves are largely speculative based on their expectations of future value. But for Iranians, bitcoin is more than a speculative investment, the experts said.

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“Visa, Mastercard and everything in the outside world is working well, but in Iran, because of the embargo, we don’t have access to these tools,” said Hadi Nemati, a cryptocurrency researcher in Iran who works at Blockchain Match, a blockchain technology accelerator.

Nemati was referencing the heavy sanctions Iran has faced from the United States and its allies in an effort to curb Tehran’s missile development program and its funding of terrorist groups. The 2015 nuclear deal reached between the U.S., its allies and Iran relieved some, but not all, of those sanctions, which could be re-implemented if President Trump decides not to continue with it.

“In most of the world, bitcoin is more of a store of value, but in Iran it’s a utility because it gives us access to the world economy. Iranians buy bitcoin because they don’t have access to international fiat currencies,” Nemati said.

The influx of bitcoin and other cryptocurrencies into Iran has also given rise to an increasingly robust community.

Ziya Sadr, a cryptocurrency researcher in Iran, said that cryptocurrency groups on the Telegram messaging app have taken off with digital currencies’ meteoric rise.

“I attended a conference a few months ago, the first national cryptocurrency in Iran. Most of the people had no idea what blockchain and bitcoin was,” Sadr said. Now he says there is more awareness.

Experts say that cryptocurrencies are gaining traction in countries like Iran because they give their owners a sense of financial security, as well as the ability to pull out of national financial institutions.

If more sanctions were to be re-imposed on Iran, for example, foreign governments would have limited ability to enforce those sanctions on digital currencies. Cryptocurrencies can be exchanged across the world in a matter of minutes or hours depending on the currency. And because there is no single entity controlling bitcoin, trying to crack down on it can be like playing a game of whack-a-mole, but with millions of people.

This feature can be useful in countries where citizens don’t trust their financial systems.

“You see cryptocurrency adoption in a lot of countries where the banking system has failed,” said David Yermack, a finance professor at New York University’s Stern School of Business.

The utility of cryptocurrencies in the absence of a useful banking system has led many in Venezuela and Zimbabwe to turn to cryptocurrencies as their countries languish in political strife.

In other comparatively more stable countries that still have financial issues, individuals are also turning to cryptocurrencies.

“I think actually China has a banking system that everyone understands to be troubled and people want to get money out of it,” Yermack said. “It’s a way to evade that.”

Investors in China have poured money into cryptocurrencies accordingly. As a result, Chinese investors have become dominant forces in bitcoin, Ethereum and other markets.

Iran fits neatly into the mold of a country that would want to take advantage of cryptocurrencies. Its massive political protests over the last couple of weeks were rooted in the country’s financial problems.

According to Coin Dance, which tracks bitcoin trading around the world, Iran saw its highest trade volume of bitcoin before and during the protests. Iranians were apparently able to purchase the cryptocurrency even as other secure, encrypted services such as the messaging apps Signal and Telegram were blocked by the government.

While the country’s banking system hasn’t collapsed to Zimbabwe’s level, it has inspired distrust from much of the Iranian public.

In 2017, Iranians staged protests outside of the country’s central bank in Tehran. During the most recent round of protests, demonstrators gathered at banks across the country.

Yet the use of digital currencies isn’t without risk.

Yermack said the transparency of many cryptocurrencies makes it easy to trace payments to their issuers.

“A lot of these currencies have blockchains that are completely transparent and you can monitor them,” Yermack said. “It’s a double-edged sword. It gives liquidity to people in these countries but it also gives the government a way to prosecute them.”

Payments on bitcoin and other currencies are attached with a traceable, cryptographic ID. Anyone can look up such an ID and see its entire history of transactions. Though the identities of users tied to IDs aren’t generally known, experts with enough time and resources can, in some cases, trace them back to individuals in the real world. 

This can be particularly troubling for people in countries like Iran, where the government has a track record of arresting journalists and political dissidents.

Iran’s status as a pariah country can also create issues.

Nemati and Sadr voiced their frustration with the major international cryptocurrency exchange, Bittrex, which they say has frozen many Iranian accounts. 

“All Iranians who had accounts on Bittrex were all disabled and suspended. It’s been more than 4 months that there has been no response,” Nemati said, noting that millions of dollars worth of cryptocurrency are locked up in in the exchange.

Bittrex says that the suspensions were a “part of a compliance review,” as many of the accounts are subject to U.S. sanctions.

“The accounts at issue, fewer than one tenth of one percent (0.01%) of the accounts at Bittrex, will remain suspended, pending direction from the U.S. Office of Foreign Assets Control,” the company said in a statement provided to The Hill.

Even with such risks, people in countries like Iran still see cryptocurrencies as a useful way out of a system that they think no longer works in their favor.

Sylvan Lane contributed.

This story was updated at 7:44 p.m.