Iran is looking toward cryptocurrencies to escape import sanctions

It is expected that countries like Iran will start using smart contracts more for foreign trade to escape sanction-related restrictions.

Iran has begun to use cryptocurrencies to settle cross-border trade dealings, as the country seeks alternatives to the US dollar and the international banking system.

The chairman of the Iran Trade Promotion Organisation (ITPO), Ali Reza Peymanpak, announced on August 9 that the first formal import order utilising cryptocurrencies had been placed "this week." Peymanpak, who is also a deputy minister of industry, mine, and trade, did not specify what commodities or services were swapped or with whom but stated the deal was worth $10 million.

It is expected that countries like Iran will start using smart contracts more for foreign trade to escape sanction-related restrictions. This is significant given Iran and Russia have engaged closer in recent months to reduce the reliance on the US dollar for bilateral trade and have also proposed to launch a new settlement system using their respective currencies. Until then, the cryptocurrency means of doing business will give them an uninterrupted way to do business.

Iran’s policy on cryptocurrency

In early 2019, Iran’s government brought in a ban on the trading of cryptocurrency within the country. This was more to do with the mushrooming of thousands of crypto-mining facilities in Iran, thereby heavily impacting the supply of power across the country. The mining of cryptocurrency coins and tokens is a competitive process that verifies and adds new transactions to the blockchain for a cryptocurrency that uses the proof-of-work (PoW) method. The miner that wins the competition is rewarded with some amount of currency and/or transaction fees.

A miner, in today’s world, would ideally need computers with a large number of high-end GPUs. This process consumes a lot of electricity. Hence, the increasing number of miners in the country led to widespread power blackouts. Just last week, Iranian authorities announced the seizure of close to 10,000 illegal cryptocurrency-mining devices over the last five months, with many of these found in public locations, such as schools and mosques that predominantly get free or subsidised electricity.

However, Iran did not completely ban the usage of cryptocurrencies like Bitcoin and Ethereum. This was more to do with the use of highly valued cryptocurrencies for international trading and exports. In October 2020, Iran amended a law to allow imports to be funded using cryptocurrency. The government agencies felt this would help them circumvent restrictions imposed on them owing to American sanctions. But this use was only restricted to funding imports into Iran.