Iranian President Hassan Rouhani has asked his government to start working on a framework to regulate cryptocurrencies like Bitcoin. He believes that clear communication about the laws and rules will help discourage dishonourable crypto businesses, who’ve had a free run so far. This comes even as the country imposed a blanket ban on bitcoin mining this year for four months due to electricity shortage.
He also warned retail investors to be careful of “unprofessional” businesses currently operating in the space. Rouhani told the Economic Coordination Board that monitoring is critical for the safe acceptance of crypto at a larger scale.
“For legalizing the activity of cryptocurrencies and protecting people’s capital in this area, we must think of a solution as soon as possible and lay down and communicate the necessary laws and instructions,” Rouhani remarked at the Economic Coordination Board meeting.
Why is Iran opening up to cryptocurrencies?
The Central American country, El Salvador, became the first one to accept Bitcoin as legal tender, along with the American dollar. Due to its small size, much of its economy is untapped, and despite having a global fiat currency, its future growth prospects look limited. Hence, it decided to try a new alternative unlike any other.
Iran, too, shares a similar motivation. The US has imposed CAATSA (Countering America’s Adversaries Through Sanctions Act) on the country, preventing American companies from doing business with sanctioned entities. However, the economic sanctions place Iran in a spot since companies allied to the west are bound to avoid it, creating a ripple effect that severely affects Iran’s international trade.
The country also stands primarily disconnected from the global banking system as trade via the American dollar is restricted. It’s widely known that the dollar is the de facto international currency and exerts maximum purchasing power. With such extreme conditions, Iran has open-heartedly welcomed the cryptocurrency revolution.
According to a study by Elliptic, Iran houses 4.5% of all the Bitcoin hash rate in the world. The Bitcoin hash rate is generally said to be a health signifier for the network — a high hash rate means high processing power is available within the network, generating better security. For comparison, China leads the race with a 55% share, followed by the US at 11%.
How are they managing to bridge the gap?
A few years ago, Iran sensed the first opportunity with Bitcoin and opened its doors for mining. Two years ago, Chinese miners were encouraged to set up massive facilities as electricity was incredibly cheap. Since July 2020, Iran has handed out mining licenses to 50 companies and further cut the electricity tariff.
However, it didn’t go on for long. Iran announced a four-month ban on mining in May this year after cities suffered unplanned blackouts. Despite handing out licenses, it’s estimated that 85% of miners still operate in the black. Rouhani claimed unlicensed facilities were using between six and seven times more power, leading to a ban till September 22, 2021.