With Tehran's temporary ban on cryptocurrency mining coming to an end within weeks, experts have warned dealers against unwittingly breaking US sanctions by trading in digital assets created in Iran.
Iran turned to mining cryptocurrencies to skirt US sanctions that have effectively shut large parts of its economy.
Tehran was responsible for about 4.5 per cent of all cryptocurrency mining globally but the government banned the practice for four months in May because computers used in the process were sapping too much electricity, leading to power cuts during the exceptionally hot and dry summer.
The ban expires on September 22 and mining is set to resume as Tehran effectively converts its oil and gas reserves into electricity and then cryptocurrencies to boost its isolated and inflation-ravaged economy.
Tom Robinson, head scientist and founder of Elliptic, which helps stop financial crimes, says dealers must be on alert once Iran returns to the cryptocurrency game.
“Anyone engaging in a crypto transaction is at risk of violating sanctions,” Mr Robinson told The National.
“If 4.5 per cent of Bitcoin mining is based in Iran, then there is a 4.5 per cent chance that any Bitcoin transaction will involve the sender paying a transaction fee to a Bitcoin miner in Iran.”
Bitcoin and other cryptocurrencies are created through a process known as mining, where powerful computers solve complex mathematical problems.
The process eats up enormous amounts of energy, often relying on electricity generated by fossil fuels that Iran has in abundance. Tehran allows cryptocurrencies mined in Iran to pay for imports of authorised goods.
In recent years, Iran officially recognised cryptocurrency mining as an industry, offering miners cheap energy and requiring them to sell mined currency to the central bank in a scheme that nets hundreds of million dollars and lessens the blowof US sanctions.
The prospect of cheap, state-subsidised electricity has attracted miners, particularly from China, to the country through deals cut by Iran’s military, said Mr Robinson. His estimates are based on data collected by the Cambridge Centre for Alternative Finance.
Demand for air conditioning in Iran surged in May and the energy-guzzling mining machines exacerbated power outages. After the ban was imposed, Iranian police began raids on illegal mining operations, including a seizure in late June of some 7,000 mining machines at an abandoned factory outside Tehran.
Iran's economy has been hit hard since 2018, when then-president Donald Trump unilaterally pulled out of the 2015 nuclear deal and reimposed sanctions on the country of about 83 million people.
US President Joe Biden's administration and other global powers are pursuing talks with Iran to revive the accord, although early signs of optimism dimmed when the ultraconservative Ebrahim Raisi became Iran's newest president this month.
To date, US regulators have fined two cryptocurrency companies – BitPay and BitGo – about $600,000 for sanctions breaches. In both cases, the breaches included allowing Iranians to use the companies' services.
Mr Robinson believes regulators in the US and elsewhere will increasingly focus on sanctions-dodgers in the growing realm of digital assets.
“If regulators don't crack down on this, it will become an increasingly popular way for states to bypass economic sanctions,” said Mr Robinson.
For Yaya Fanusie, another cryptocurrency expert and former CIA analyst, the US Treasury’s current approach of blacklisting the cryptocurrency accounts of designated people is “imperfect” because they can “easily start using different crypto wallets”.
China has heavily invested not only in cryptocurrency mining but also in the so-called blockchain technology that underpins digital assets in a bid to sideline the US-dominated global banking system – and Iran, Russia and others are likely to follow, he said.
“There are signs that China is at the early stage of working towards such a vision with the development of its national digital currency and many blockchain-based trade financing pilots,” Mr Fanusie told The National.
“The US will need to ramp up its own expertise in financial technology and point out the risks of these new platforms.”
Neither Iran’s mission to the UN nor the US Treasury answered The National’s requests for comment.