Investigations | June 7, 2023
In a recent report comparing cryptocurrency adoption around the world, Iran’s capital Tehran stood at 17th place, ahead of cities more commonly associated with crypto assets such as Australia and Japan.
Crypto-related activities in Iran range from mining, trading, new token development, blockchain projects and NFTs on the consumer side, to central bank digital currency (CBDC) development and foreign trade payments on the government’s side.
Yet the country lacks a proper regulatory environment for virtual asset service providers (VASPs), making it rife for crypto scams and other nefarious activities.
Are cryptocurrencies illegal in Iran?
Cryptocurrencies are not illegal in Iran, though the government has banned their use as a substitute for Iranian Rials (IRR)/Tomans for domestic transactions.
However, this has little practical significance as we found evidence of businesses in Tehran and other major cities accepting cryptocurrencies as a form of payment. Iranians also use crypto assets for cross-border payments and remittances, as international payment systems are severely restricted in Iran.
The Iranian regime banned cryptocurrency possession and trading in 2018 citing its potential for money laundering and terrorism financing as the rationale. However, under pressure from US sanctions, it revisited this ban within a year.
Iran, ablossoming crypto hub
The country quickly transformed into a crypto hub with up to 12 million Iranians, around one in seven, owning cryptocurrencies, and daily transfers were estimated at around USD 180 million as of end-2021.
For comparison, crypto ownership in the United Arab Emirates, a major regionalcenter, is estimated to be around one in three people.
Crypto regulations in Iran
Despite the lack of regulatory clarity, the country has yielded many domestic VASPs, including more sophisticated exchanges. Many of the service providers we discovered were either an augmentation of established money transfer businesses or “over-the-counter” services nested on offshore exchanges.
This is in line with other jurisdictions in the region where central regulation and supervision are absent. The Iranian cyber police (FATA) published rules for VASPs (which they are obliged to follow) in January 2023. Still, without legislation, there is no provision for licensing, raising questions over effectiveness and long-term compliance.
Crypto mining in Iran
With abundant natural resources and access to cheap electricity, mining is a buoyant industry in Iran. Iran hosts 4.5% of global Bitcoin mining from which it earns hundreds of millions of dollars. The country recognized mining as legal in 2019 and mandated a mining license requirement in 2022.
The government profits from providing electricity at higher prices, gives tax exemptions for miners and procures their mined assets for import payments.
The relationship between miners and the government has been fractious though.
During peak electricity demand seasons the government ceased to provide a power supply for mining. It also regularly crackdowns on miners operating ‘illegally’ by exploiting free or subsidized electricity, though quite often used as a pretext for additional taxation by the government.
Owing to these factors, Iran’s mining activity is unsteady, and its monthly mining share can drop from 4.5% to 0.12% in a few months.
Virtual Asset Service Providers in Iran
Launching a new unlicensed exchange is relatively easy owing to a lack of regulations and licensing requirements for cryptocurrencies.
However, as the exchange starts getting users and increased trade volumes, it can attract interest from the government and the FATA police, and would be required to comply with official requests.
Some major domestic exchanges with offices in Tehran and approved by FATA are Nobitex, Wallex, Aban Tether, Ramzinex and Arzpaya.
Foreign virtual asset exchanges in Iran
Many Iranians also use foreign exchanges via Virtual Private Network (VPN), to mask their location, with CoinEx (preferred by 17% Iranians), KuCoin (16%) and Binance (9%) being popular options, according to an ArzDigital survey.
The use of foreign exchanges by Iranians, despite being under US sanctions, is hardly a revelation.
Reuters reported last year that Binance processed Iranian transactions to the tune of USD 8 billion in 2018-22. Social media analysis paints a mixed picture, however.
While Iranian users have reported that their account was detected and suspended by foreign exchanges including Binance, some have also claimed to access these exchanges without VPN, that is, from Iranian IP address, without any issue.
Paid verification services in Iran
The country also hosts several paid verification services and agencies which help Iranians get identification documents from other countries to open an account on foreign exchanges. These services also offer advice on how to skirt IP-related restrictions on exchanges, keeping in mind not only specific exchanges, but also VPN providers.
Social media scams and crypto fraud in Iran
A lack of regulations also makes Iran rife for crypto fraud. And social media scams are prevalent across the country.
The scammers reach out to Iranians using Telegram, Instagram, and Twitter, often posing as investors or somebody from “capital management” (prevalent in Iran), promising huge returns on cryptocurrency investments.
Some are more hands-on and conduct face-to-face meetings claiming to provide investment advice and “guaranteed profits” on crypto. In most cases, the cyber police get involved only after it has received several complaints against a particular scam.
A more organized part of the scam involves redirecting the victims to fraudulent websites. These websites are designed to give the look and feel of a genuine exchange, and in many instances, support fiat deposits.
Belem exchange
One platform targeting Iranians is Belem exchange (Belem.cc along with similar websites Belem.im and Belem.blue).
Belem exchange operates in 13 languages including Persian and supports IRR deposits.It is worth noting that almost all the languages on Belem are from countries that lack cryptocurrency regulations.
Another similar platform that seems to target Iranians is MoonXBT.com, although there haven’t been complaints against it to date.
At the time of writing, local news reports from Shiraz indicated that local promoters of Belem had been arrested and charged with fraud of IRR 80 bn (USD 1.9m).
Crystal’s comment on crypto regulation in Iran
In places of light touch, ambiguous, or without crypto asset regulation there is a correspondingly greater chance of fraud as residents are less equipped to find recourse or resolution when they become victims.
Though some states have responded with outright bans on certain or even all activity, this has not impacted the ability for fraud operators to take advantage of poor economic conditions and promise ‘get rich quick’ schemes for little investment.
We anticipate that this trend will continue whilst states struggle to formulate effective legislation and investigative capacity. Iran, a pariah state at best, will likely remain a prime target for fraud amidst its dire economic conditions and ambiguous crypto asset regulations.
The downfall of Sina Estavi and Cryptoland
In May 2021 Sina Estavi, also known as ‘the Crypto Sultan’, was arrested by the Islamic Revolutionary Guard Cops (IRGC) for creating and selling a blockchain token in Iran (which is illegal), and had all assets of his exchange, Cryptoland, seized.
Reports from Estavi indicated that users of the exchange were deprived of IRR 270 billion (USD 6.5 million) worth of digital assets, around 195 billion Toman (currency unit, 10 rial = 1 toman) in real estate collateral, as well as the theft of USD 30 million.
At the time of the arrest, a voice note purportedly from an employee of Cryptoland captured a Cyber Crime Intelligence Officer saying during the raid on their premises that Estavi had been under investigation for a month prior in connection to his ‘BRG’ token, an alleged Ponzi scheme. At the time, officials said that the platform would be reopened within two days to allow users to recover their money. However, this did not happen.
Cryptoland users lose assets
Users of Cryptoland have demanded the return of their assets in several protests in recent months, to no avail. Estavi alleges that the IRGC officers involved in seizing the assets have taken them for themselves, claiming that the lead officers involved have since purchased businesses and real estate.
Separate sources have indicated that Estavi had previously provided support and funds to the presidential campaign of former president Mahmoud Ahmadinejad during the most recent elections. Estavi’s social media outlets across Telegram and Instagram heavily promoted Ahmadinejad during the run up to the elections in 2021.
Money mules and crypto in Iran
Another illegal activity prevalent in Iran is rental account scams where unsuspecting victims can get involved in money laundering.
The scam can be run by individuals or fraudulent websites and at times advertised as online part-time work. The victims first receive some money in cryptocurrencies which they then transfer to another address, keeping a minor cut for themselves.
The funds can be proceeds of illicit activities from either inside or outside Iran. With victims acting as money mules, it poses a serious challenge for domestic virtual asset exchanges and the Iranian cyber police is also particularly sensitive towards this kind of fraud.
Iranian government initiatives that support digital assets
Iran currently has two major crypto projects: Iran’s Central Bank Digital Currency (CBDC) project and a gold-backed stablecoin in partnership with Russia.
The Central Bank of Iran recently claimed it completed the CBDC’s pre-pilot phase. Known as crypto rial, the currency is pegged to the national currency and runs on Borna platform developed using IBM’s open-source blockchain platform Hyperledger Fabric.
The other project, a joint venture of a gold-backed stablecoin with Russia, is meant to bypass sanctions and the SWIFT international banking system for bilateral trade.
However, the stance on both state cryptocurrencies is to not hurry into action, implying there is time before these are realised. Many experts believe that the two projects might not serve their purpose, and some even question if these would be implemented at all.
The future of Iran’s love-hate relationship with crypto
Iran has a strong local virtual assets industry catering to a significant user base.
However, a lack of regulatory framework on cryptocurrencies makes the field uncertain and prevalent with fraud. The government certainly benefits from the crypto industry but, at the same time, wants to keep its powers centralized.
In the past, it blamed cryptocurrency transfers for funding unrest in Iran, without providing any evidence. The state has been using crypto payments for imports since 2022 but is firmly set against its use by citizens.
The environment makes for a love-hate relationship with cryptocurrencies, where the government-created ambiguity allows it to profit from mining and use virtual currencies for imports. At the same time a lack of regulatory framework leaves Iranian citizens with little to no recourse in case of the collapse of a virtual asset service provider or a scam.
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