Iran recently announced plans to develop its own national cryptocurrency in order to circumvent U.S. sanctions. This intention to create blockchain-based infrastructure for the country’s banking sector comes as the Trump administration has reimposed sanctions that the U.S. suspended as part of the Iran nuclear deal. Like with the regime in Venezuela, which tried to launch its own cryptocurrency earlier this year, this appears to be a desperate attempt by Tehran to defy Washington while trying to usurp the burgeoning growth of Bitcoin in Iran. Tehran’s cryptocurrency pivot likely is aided by Russia as part of a collaborative attempt to build a new system for global financial transactions to help their respective banks become “sanctions resistant.” Ironically, this authoritarian embrace of blockchain technology conflicts with the ideals of libertarianism and censorship-resistance supported by many cryptocurrency enthusiasts.
When President Trump announced in May that he would withdraw from the Iranian nuclear deal, Tehran had to reckon with the danger of being shut out of the global financial system. Crippling sanctions that removed Iranian banks from the global SWIFT banking system and impeded their ability to transfer funds internationally are what drove Iran to the negotiating table back in 2013. But even with sanctions lifted two years ago, Iran’s economy has faltered, sparking widespread protests by low-income Iranians as the rial has dropped precipitously since the beginning of 2018. Looking for ways to preserve wealth, many Iranians have begun purchasing cryptocurrencies like Bitcoin to store value.
Iranian senior officials have been working to prevent capital flight by discouraging citizens from using Bitcoin and, according to some reports, restricting access to foreign crypto exchange websites. Now, the Iranian government wants to introduce a cryptocurrency it can control, unlike the decentralized Bitcoin protocol. Iran’s central bank, like many countries, has been doing academic research on blockchain technology at least since 2017, but only in recent months have officials publicly touted the idea of a state-based crypto. Various Iranian agencies are coalescing around blockchain innovation. In early July, Iran’s official department for science and technology signed an agreement to work closely with the central bank on cryptocurrency technology. Weeks later, Iran’s Information and Communications Technology ministry signed an MOU with Iran’s national library to use blockchain technology to digitize the country’s archives. Iran clearly is bullish on crypto/blockchain tech.
Russia probably is influencing Iran’s push toward crypto. In May, both Iranian and Russian press reported that a senior Iranian economic official met with his Russian counterpart in Moscow. The Iranian official then announced that Iran’s central bank would develop proposals for a state-backed cryptocurrency and opined that cryptocurrencies could help both countries steer clear of the SWIFT banking system and dollar transactions. Russian media also reported that the two countries planned to reconvene to discuss interbank cooperation in July, although there has not been press coverage of that meeting. Interestingly, Russian entrepreneurs helped Venezuela’s Maduro regime to launch a state cryptocurrency (though it appears that effort has floundered); some media sources report that the Kremlin has overseen the Venezuelan crypto project.
Details on how the Iranian cryptocurrency would work are unclear except for officials saying the token will be backed by the rial and launched in three months, initially for use by domestic banks. Building a new blockchain platform capable of handling massive amounts of daily financial transactions takes considerable time and resources. So, this relatively short time span indicates that either Iran secretly has been developing it for well over a year or is planning a cryptocurrency built on an already existing blockchain. Venezuela tried to do the latter.
Either way, Iran’s state crypto is unlikely to bolster the Iranian economy. Pegging its value to the rial would make the digital token as unattractive as the nation’s paper currency. And eliminating Iranian access to all non-state cryptocurrencies will be difficult. Iran previously has shut down the internet within its borders, but for only brief time periods. Local crypto enthusiasts still find work arounds to trade crypto even when the regime blocks exchange websites.
There should not be any doubt about the relevance of the crypto space to U.S. foreign policy and national security. Russia, Venezuela and now Iran are making it clear that they intend to resist U.S. sanctions by adopting blockchain technology-based mechanisms. These authoritarian regimes are looking to build an alternative financial system where there will be no repercussions for funding corruption, oppression and other malfeasance. U.S. sanctions are not perfect, nor exhaustive, instruments of foreign policy, but they are important for enforcing global standards of accountability to check nuclear proliferation, human rights abuses and terrorism.
This does not mean that cryptocurrencies and blockchain should be intrinsically feared or discouraged from a national security point of view. These are simply new technologies suitable to advancing licit or illicit objectives. But three things should be done to keep rogue regimes from building sanctions resistance.
First, the U.S. Treasury department should reinforce the message to U.S. persons and any institutions banking with the U.S. financial system that providing financial value of any kind to the regime in Iran violates U.S. sanctions, whether via dollars or cryptocurrencies. Months ago, Treasury said it was prepared to add digital currency addresses owned by sanctions targets to its blacklist. While sanctioned actors can create new addresses at will, designating addresses would encourage financial institutions to tread carefully so not to bolster sanctions evasion schemes as they enter the crypto space.
Second, the U.S. and other governments concerned about nations exploiting blockchain technology to entrench authoritarianism should acknowledge that, similar to the space race of decades ago, there is now a “crypto race” emerging. The Group of Seven (G7) countries should be watching coordination among the rogue actors in this race and strategize ways to foster crypto/blockchain innovation that truly enhances economic and political freedom. While it may be improbable that Russia, Venezuela and Iran could construct some cryptocurrency-based financial system trusted by the rest of the world, their intentions should not be dismissed. The best protection against such a move would be for free nations to invest in the crypto/blockchain space so that this nascent technology, like the internet, develops in association with liberty.
Lastly, the broader crypto space should not treat rogue regime crypto with ambivalence. Instead, blockchain tech influencers should “call out” crypto schemes that fund oppressive regimes. Just as responsible cryptocurrency enthusiasts know that ICO scams hurt crypto’s image, they should understand the risk of authoritarian crypto to tarnish the technology’s reputation. The fascinating thing about the crypto/blockchain space is that its story has yet to be written. It is important that when it does, it gets broadcast with the highest code.
Source » forbes