Publication of the Central Bank of Iran’s 13-page draft structure on the legality of cryptocurrency has caused alarm among the crypto community in the country, who fear that the structure may damage the ability of business and individuals to work effectively within the developing, fast-paced cryptocurrency sector.
The draft structure was published several months behind schedule in January 2019 – however, on 9 March, in excess of three dozen members of the community sent their own proposals to the Central Bank of the Islamic Republic of Iran in a joint document, highlighting 51 issues with the regulators’ draft framework which are seen as problematic.
The draft structure published in January
- prohibits the use of global cryptocurrencies and other tokens as methods of internal payments.
- requires the exchange of cryptocurrency for obtaining permits, opening up new opportunities for rent seeking, of which Iran already has too much;
- frequently uses the word “prohibited”, suggesting a threat of criminal prosecution.
The issues found by the local community in the draft provoked an immediate reaction – and resulted in a concerted effort to improve the draft, suggestions for which have now been delivered to the Central Bank of Iran. However, while these are considered, the cryptocurrency community in Iran remains in a degree of stasis in the face of existing government centralization and the restrictions resulting from US sanctions against Iran.
Contradictions in Iran towards crypto
The Iranian Government has recognised cryptocurrencies and trading, but inside the Islamic Republic it remains prohibited as a means of payment.
However, there is also a contradictory attitude towards cryptocurrency – which is an unregulated, decentralized currency.
Despite the restrictive regulatory first draft, there is also an eye to the potential crypto has to work across physical boundaries by the crypto community, although sanctions will remain in place and these cannot be overcome by a digital currency.
It is thought the draft will overturn the April 2018 ban on using crypto for payments within Iran, however, once the regulatory framework for crypto trading in Iran is introduced. At the time, the ban was a measure intended to prevent further pressure on the Iranian rial in light of potential US sanctions.
The bank and the community are not, however, the only interested parties in the regulation of cryptocurrency in Iran, with bodies such as the Securities and Exchange Organization and The Ministry of Energy and Customs Administration, among more than twenty others, all vying for input into regulation of cryptocurrency in the Islamic Republic.
What the Bank of Iran approved in the legality of crypto draft document
The original draft states that it intends to organise and define the boundaries of cryptocurrency operations, to enable crypto traders to plan ahead. The Bank of Iran also approves:
- Bitcoin – as well as Iran’s own cryptocurrency and any regional cryptos in the Islamic Republic.
- ICOs (initial coin offerings) and tokens.
- The “infrastructure” of crypto trading – including cryptocurrency hot and cold wallets, exchanges and mining to generate cryptos using computers.
Effect of sanctions against Iran
Iran’s dual exchange rates were unified in April 2018, as the ban on using cryptocurrency to make payments was also introduced to ease pressure on the rial because of the threat of US sanctions.
To prevent future outflows of capital, the Central Bank of Iran also imposed a general ban on cryptos, by order of the Iranian Government.
The following month, in May 2018, the country’s nuclear deal with the US was scrapped by the Trump administration, which also announced sanctions against the Islamic Republic of Iran.
The result was a plunge in the rial, a currency crisis for Iran – and stasis for many in the crypto community.
There was also a purge of currency traders, some of whom were subjected to death penalties.
The draft publication in January represents a step forward for the crypto community, after a night of long knives for currency traders and an effective freeze on the cryptocurrency community and their projects.
However, the restrictions contained in the draft mirror current restrictions on currency.
The draft publication disappointed many hoping that the regulation of cryptocurrency in Iran would potentially allow more freedom for the crypto community.
The proposed regulation of crypto, however, barred the accumulation of large amounts of cryptocurrencies in Iran, mirroring the limit on holding more than 10,000 euros.
For the time being, payments using cryptocurrencies continue to banned – despite crypto payments operating globally without centralized regulation and providing a cheap and quick way of making payments digitally.
At the time the draft was published in January, cryptocurrency trader Perhman Azhdarpour told Al Jazeera:
“The ban on using intenationally accepted cryptos as payment methods can negatively affect the work of me and many like me.
“We were hoping the central bank’s stance would not again restrict the use of bitcoin and other cryptocurrencies in any way.”
However, at the time, Iran’s information technology minister, Mohammed Javad Azari Jahromi, said the draft was “a move in the right direction” –
although he also acknowledged that restrictions might not be “well received by crypto players”, according to Al Jazeera.
Waiting for Crypto
The Central Bank has moved to reassure the crypto community that the draft publication is subject to changes according to feedback from the community, received on 9 March.
While the wait goes on, board member of the Iran Association of Blockchain, Soheil Nikzad, has already revealed to the media that approximately $10m-worth of transactions take place daily in Iran.
With crypto ratings continuing to show a general boom in daily user transactions – and the value of cryptos continuing to rise – even a government-regulated crypto market in Iran is like to prove even more of a winner.
The ethos of cryptocurrency is a non-regulated, non-centralized digital peer-to-peer payments system – how much of that ethos Iran will eventually embrace in the light of submissions from the community to the draft regulation on the legality of cryptocurrency remains to be seen.
Iran crypto image licensed via Shutterstock.