Cryptocurrency in Iran

Cryptocurrency in Iran has become a significant part of the nation's financial landscape due to the country's economic struggles, international sanctions, and the potential of digital currencies to circumvent global financial restrictions. Iran's interest in cryptocurrencies intensified in 2017 when international sanctions hampered its access to the global financial system, leading to a growing reliance on Bitcoin and other digital currencies. The Iranian government has taken steps to regulate the cryptocurrency market, including legalizing mining, but the framework remains complex as it seeks to maintain control over digital assets. Iran's cryptocurrency market faces challenges like high energy costs and the involvement of the Islamic Revolutionary Guard Corps in illicit activities, but it continues to evolve, with the government exploring blockchain projects and citizens seeking alternatives to preserve wealth.

Historical Context and Market Development

Iran's interest in cryptocurrencies intensified in 2017 when international sanctions—particularly those led by the U.S.—severely hampered its access to the global financial system. This resulted in a growing reliance on Bitcoin and other digital currencies as alternative methods to bypass the restrictions.

In 2019, the government legalized cryptocurrency mining under specific conditions. This decision was partly influenced by Iran's abundant energy resources, which made mining feasible despite its energy-intensive nature. However, the landscape soon became complicated with the government imposing strict controls on mining, trading, and other crypto-related activities.

Regulatory Framework

Mining Regulations

Iran legalized cryptocurrency mining in 2019, recognizing the potential for revenue generation amidst economic sanctions. However, the legalization came with heavy regulations, including requiring miners to sell their digital assets directly to the Central Bank of Iran (CBI). Licensed miners are also subjected to high energy tariffs, which have made mining financially unsustainable for many. This has led a significant portion of Iran's mining activities to go underground, with illegal operations continuing to flourish.

Exchanges and Transactional Controls

Iranian cryptocurrency exchanges such as Nobitex have been increasingly popular among citizens. However, these exchanges operate under stringent regulations, requiring licenses and compliance with anti-money laundering (AML) and combating financing of terrorism (CFT) guidelines. The Central Bank prohibits the use of foreign-mined cryptocurrencies for domestic transactions, reinforcing government control over the digital currency market.

Despite these measures, many Iranians utilize virtual private networks (VPNs) to access foreign exchanges, circumventing local restrictions and avoiding scrutiny.

Mining Sector and Energy Challenges

Energy Costs and Infrastructure Issues

Bitcoin mining is highly energy-intensive, requiring substantial electrical resources. Iran's power grid is both fragile and costly to maintain, with frequent outages and a loss of about 13% of electricity during transmission. Licensed miners must pay premium rates for electricity, pushing many to abandon legal operations for underground, unlicensed mining.

As a result, Iran's share in global Bitcoin mining has decreased from 4.5% in 2021 to around 3.1% in 2024. The clandestine nature of much of the country's mining, combined with the high operational costs, makes the mining industry an unstable sector in Iran.

Economic Viability

For licensed miners, the break-even cost of Bitcoin mining in Iran is much higher than Bitcoin's current price. With energy tariffs changing every quarter, and frequent power disruptions during peak seasons like summer, many find legal mining operations increasingly difficult to sustain.

As Iran's inflation remains high, at approximately 44%, and the currency devaluation persists, citizens seek alternative ways to store their wealth. Cryptocurrencies have become one such method, as digital assets provide a means of protecting against the weakening value of the Rial.

Government Involvement and Blockchain Initiatives

Central Bank of Iran’s Blockchain Projects

In recent years, the Central Bank of Iran has shown a growing interest in blockchain technology. Notably, the development of the Borna blockchain platform was launched in conjunction with Areatak, an Iranian blockchain solutions provider, to create a digital framework for Iran's banking and financial sectors. This project, along with the Kuknos Network, which was spearheaded by several major Iranian banks, reflects the government's efforts to capitalize on blockchain technologies while maintaining strict control over digital assets.

Sanctions and International Concerns

Iran's use of cryptocurrencies to evade sanctions has raised alarms internationally, particularly with entities such as the U.S. Office of Foreign Assets Control (OFAC). OFAC has identified Iranian exchanges as potential conduits for illicit financial activities, including sanction evasion. The involvement of actors linked to the Islamic Revolutionary Guard Corps (IRGC) in cryptocurrency transactions has further fueled concerns about the role of digital currencies in supporting activities that undermine international sanctions.

Adoption and Public Perception

Inflation and Wealth Preservation

With inflation rates soaring, many Iranians have turned to cryptocurrencies as a means of preserving wealth. Alongside more traditional assets such as gold and foreign currencies, Bitcoin and other digital currencies have gained popularity among citizens looking to shield their savings from the devaluation of the Iranian Rial.

Challenges for Users

The Iranian public, particularly younger and more tech-savvy individuals, have embraced cryptocurrency trading and investment. However, the government's restrictive policies, high operational costs, and regulatory complexity present ongoing challenges. Despite the popularity of domestic exchanges, many users still rely on VPNs and fake IDs to access international platforms.

Future Prospects and Challenges

Regulatory and Enforcement Dilemmas

While Iran's government has acknowledged the potential benefits of digital assets, it is equally concerned about controlling illicit activities linked to cryptocurrency. Enforcing strict regulations on mining and trading platforms remains difficult, given the widespread use of obfuscation techniques such as VPNs and fake identification.

Energy and Technological Infrastructure

Without significant improvements to its energy infrastructure, Iran's ability to maintain a thriving legal crypto-mining sector will remain limited. High energy tariffs and inefficient transmission systems are key barriers that must be addressed. Similarly, investment in blockchain technology projects like Borna and Kuknos will need a supportive environment that encourages innovation while balancing regulatory oversight.

Geopolitical Challenges

Iran's cryptocurrency market will continue to be shaped by the geopolitical landscape. Sanctions remain a critical factor, and global regulatory bodies will likely continue monitoring Iran's use of digital currencies to circumvent restrictions. The international community's focus on sanction compliance will remain a significant obstacle to Iran's expansion of its cryptocurrency market.

The Role of the IRGC in Iran’s Cryptocurrency Market

The Islamic Revolutionary Guard Corps (IRGC), a prominent military and political force in Iran, has leveraged the cryptocurrency market as a tool for evading international sanctions, generating funds, and conducting covert financial operations. Given its substantial control over Iran's economic sectors, the IRGC's involvement in cryptocurrency has raised concerns about the intersection of state-controlled entities and digital finance.

IRGC’s Use of Cryptocurrency for Sanction Evasion

International sanctions, especially from the United States, have significantly limited Iran's access to global financial markets, pushing state-linked entities such as the IRGC to explore alternative channels for transactions. Cryptocurrencies, particularly Bitcoin, have provided the IRGC with an effective way to bypass traditional banking restrictions and move money across borders.

The decentralized nature of cryptocurrencies makes them difficult to trace, allowing the IRGC and affiliated groups to use them for sanction evasion and illicit activities. In 2022, the U.S. Treasury's Office of Foreign Assets Control (OFAC) sanctioned two Iranian individuals, Amir Hossein Nikaeen Ravari and Ahmad Khatibi Aghada, both linked to the IRGC. These individuals were involved in cyber-related activities and used cryptocurrency to funnel funds into Iran through local exchanges.

Furthermore, cryptocurrency is increasingly used to fund IRGC-affiliated operations, including cyberattacks and arms smuggling. Digital assets offer a secure and relatively anonymous way to conduct international transactions, which has become crucial for the IRGC under tightening sanctions.

Links Between IRGC and Domestic Exchanges

Certain Iranian cryptocurrency exchanges have been indirectly linked to IRGC operations, raising concerns about their role in sanction evasion. Nobitex, Iran's largest crypto exchange, has facilitated transactions for individuals and entities attempting to bypass international restrictions. Nobitex, along with other platforms, discourages the use of VPNs, but users frequently use such tools to conduct illicit transactions abroad, sometimes with ties to sanctioned organizations like the IRGC.

The IRGC's influence over Iran's economy extends into cryptocurrency mining and trading. While direct evidence linking the IRGC to mining operations is scarce, the organization's control over key industrial and energy sectors makes it a likely beneficiary of the profits generated by mining operations. Iran's energy-intensive mining activities offer high revenue potential, particularly given the country's vast energy resources, making it an attractive target for groups with close ties to the government.

Potential Future Role

As the cryptocurrency market continues to grow in Iran, the IRGC's involvement will likely expand, particularly in its efforts to evade sanctions. The use of digital currencies offers the IRGC a way to circumvent financial restrictions while simultaneously generating revenue. However, this increased activity is likely to attract further scrutiny from international regulators.

The IRGC's entanglement with Iran's cryptocurrency market demonstrates the potential risks associated with unregulated digital currencies, particularly in jurisdictions facing heavy international sanctions. As global regulatory bodies push for stricter oversight of cryptocurrency transactions, the IRGC's activities in this sector will likely remain under close observation.

Cryptocurrency, the IRGC, and Corruption in Iran

The intersection of cryptocurrency, the Islamic Revolutionary Guard Corps (IRGC), and corruption in Iran underscores how digital currencies are being used not only for sanction evasion but also as a tool to conceal financial mismanagement, fraud, and other illicit activities. The IRGC's deep involvement in Iran's economic structure and the relative opacity of cryptocurrency transactions create a fertile environment for corruption.

Cryptocurrency as a Tool for Concealing Corruption

The IRGC, already a dominant force in Iran's military and political spheres, controls significant portions of the nation's economy, including industries related to construction, telecommunications, and energy. This control has often been used to secure funds for illicit activities, including corruption and graft. Cryptocurrency, with its anonymous and decentralized nature, offers an ideal mechanism for transferring and hiding illicit gains, thus exacerbating the existing corruption problems in Iran.

Digital currencies enable the IRGC to bypass domestic and international financial controls, making it easier to funnel illicit funds into local and foreign ventures. Corruption linked to the IRGC often involves the diversion of state resources, including the profits generated from cryptocurrency mining operations, which may be misused for personal enrichment or political favors. The difficulty of tracking cryptocurrency transactions across borders makes it a particularly appealing tool for corrupt officials within the IRGC.

Corruption in Mining Operations

Iran's cryptocurrency mining sector has also been tainted by corruption, especially given the IRGC's influence in key areas of the economy. Reports suggest that unlicensed and underground mining operations, often controlled by entities with ties to the IRGC, operate with relative impunity. These clandestine operations evade energy tariffs and other regulatory restrictions by exploiting political connections, diverting resources, and sometimes engaging in outright bribery.

Government oversight of the mining sector is often lax, and regulatory loopholes are exploited by corrupt officials who enable these illegal operations to flourish. For example, many unlicensed miners avoid high electricity tariffs, a critical cost in legal mining operations, by using connections within the IRGC to gain access to subsidized energy sources or government infrastructure. This has led to systemic corruption, where the profits from illegal mining fuel further corruption and graft, often involving key figures linked to the IRGC.

The IRGC’s Role in Cryptocurrency-Linked Fraud

In addition to corruption in mining, the IRGC has been associated with fraudulent activities involving cryptocurrencies. Several instances of cryptocurrency-related scams have been linked to individuals with connections to the IRGC, where fraudulent investment schemes promise high returns on cryptocurrency investments. These schemes exploit Iran's economic instability, drawing in individuals desperate to protect their wealth from inflation and currency devaluation.

These fraudulent activities are often protected by the IRGC's vast political influence, making it difficult for victims to seek justice. The lack of transparency in cryptocurrency markets, combined with weak regulatory enforcement in Iran, enables these fraudsters to operate with little fear of legal repercussions. These scams serve not only as a source of illicit income but also as a way for corrupt officials to launder money through seemingly legitimate digital transactions.