Stung by never-ending US sanctions, Iran has legalised Bitcoin as a reserve currency, and is looking at integrating the cryptocurrency into its struggling national economy.
Iranian authorities say they have already handed out 1,000 Bitcoin mining licences to three power plants to provide energy for mining firms, requiring the locally mined tokens to be sold to the Central Bank of Iran to help pay for imports.
Iranian banks lost access to the global banking system when Donald Trump withdrew the US from the Iran nuclear deal, and imposed further sanctions. The latest round of sanctions was imposed on the 8th of October, targeting 18 Iranian banks, and the Iranian economy has subsequently suffered from high inflation rates and further currency depreciation.
As a result, ordinary Iranians turned to digital currencies to move money abroad. Authorities initially stepped in by cracking down on miners abusing highly subsidised energy in Iran. But the government has now adopted a more friendly attitude toward cryptocurrencies, after realising they allow Iran to get around banking limitations.
"People in Iran turned to digital currencies for moving money because we don't have any access to international banking networks, and then started to mine themselves as they could get very cheap setups," Reza Ghiasi, an Iranian entrepreneur working in the cryptocurrency market in the region told VICE News.
Digital currency mining is the process of keeping necessary records to maintain the ledger of transactions upon which the currency is based. Mining has become more sophisticated over the years, and it requires a substantial amount of energy.
Brimming with cheap oil and gas, Iran has some of the most affordable electricity in the world. Through the newly introduced licensing system, the mining firms in Iran will provide steady revenue, and the tokens funnelled to the vaults of the central bank can be used to fund imports.
"The recent decision from the government is a matter of showing good intentions toward the digital currency market, and it doesn't have much of an effect today, but ten years down the road it will have a bigger impact on the economy as the market will grow bigger, and it will elevate to a level to pay for imports and exports," Ghiasi said.
The Iranian rial has lost about 57 percent of its value in 2020 so far after a drop in oil prices. The coronavirus pandemic deepened the country's economic crisis, on top of fresh sanctions imposed by the Trump administration. An inflation rate of 34 percent for over two years has also left struggling Iranians with very few options.
"What we see is the growth of this strange internet money taking its next step, which is state adaptation, and Bitcoin has matured. It is just normal to see a country like Iran utilising a digital currency as a reserve and pay for imports and exports now," said Peter McCormack, the host of the podcast What Bitcoin Did.
Bitcoin, sitting on a $200 billion market cap, will also benefit from Iran's latest decision. Meanwhile Tehran will bring in extra income through mining and elevate its digital currency market to substitute the need to use the US dollar international market.
"It is a bold move by Iran, and it is still too early to see how they will use the digital currency, but it is a right move in the right direction for a country that wants to circumvent US sanctions," McCormack added.