This is opinion editor Q Ghaemi, a stock and bitcoin analyst and author of the Qweekly Update newsletter.
Earlier this month, news broke that the Central Bank of Iran was working with the Russian Crypto Industry and Blockchain Association to create a gold-backed stablecoin to settle trade. This is not the first foray into the cryptocurrency world for either country, and it won’t be the last. But this initiative will go to waste and ultimately bring both countries one step closer to accepting Bitcoin.
Iran’s access to cryptocurrencies favors Bitcoin
In August 2022, a headline came and went, and most didn’t hear about it, and those who did thought little of it: “Iran Approves Use of Cryptocurrency for Imports to Avoid Sanctions.” Aside from the fact that the source of this headline is a Saudi-sponsored media outlet that aims to destabilize and delegitimize Iran, it is important to recognize that Iran successfully completed trade worth an estimated $10 million in August. believed to be carried in bitcoin.
Based on the daily volume, there are about 20 possible cryptocurrencies that could be used to complete this transaction, but if we take these cryptocurrencies by daily volume and agree that none with a daily volume of less than $1 billion can be used (anything) than 1% of the daily volume most will fluctuate in price very significantly: 1% of $1 billion is $10 million) leaving us with seven possible cryptocurrencies: Ripple (XRP), Solana (SOL), USDC, Ethereum (ETH), Binance (BNB), Tether (USDT) and Bitcoin (BTC).
We can quickly eliminate USDC, Solana and Ripple because they are all controlled by US corporations and due to sanctions laws (see Tornado Cash) they will be forced to prevent Iran from using their platforms (also presumably Iran government chose to avoid US companies for simplicity). Tether could also be thrown, given its correlation to the US dollar. I’m also going to dump Ethereum because Iranians are too cheap to pay those gas bills. This leaves us with two options: BNB and Bitcoin. Personal bias aside, no one solves international trading with BNB without Binance CEO Changpeng Zhao (CZ) having some kind of victory. Bitcoin earns.
Iran has also previously banned Bitcoin mining operations due to strain on Tehran’s power grid. It has since returned all of its mining equipment and, as mentioned above, claims to have completed a $10 million transaction using the cryptocurrency for international trade. Suffice it to say that Iran has begun to see the potential of Bitcoin.
Russia’s access to cryptocurrencies demonstrates the need for permissionless exchanges
Russia has also begun to step into the wider cryptocurrency space. After the US government responded with sanctions to the invasion of Ukraine, Russia was forced to explore alternatives to complete international trade. President Vladimir Putin’s response was to divest more than $500 billion in reserves and mandate that every buyer of Russian natural gas pay in Russian rubles. The ruble responded very positively to the news (see the chart below with the red arrow indicating when US sanctions began and the green arrow indicating when the ruble became the sole payment for Russian natural gas).
Russia then slowly began to change its stance on cryptocurrencies in 2020. Late last year, Russia announced it would allow international settlements in cryptocurrencies without restrictions, a major departure from its previous position. These steps prove that Russia sees the potential of cryptocurrency as a means of exchange.
Sanctions Strengthen Bonds
Both countries have faced US/Western sanctions but have found ways around them to stay in power. The lesson both of these countries have learned is to trust no one, especially in the financial world. Putin has profusely announced that by freezing Russia’s dollar reserves, he has “practically defaulted,” suggesting that even the mighty dollar may not be as strong as the United States would like to believe.
Iran is also no stranger to empty promises from the West: after negotiating and agreeing to a nuclear deal in 2015, President Donald Trump swooped in and tore up the old deal. While this is common practice in some (shady) business ventures, it is an insult in Persian culture. Any hint that Iran would sign a new nuclear deal was laughable: why would Iran assume that the next deal would remain in place after this president leaves office? Needless to say, the Iranian government has very little trust in foreign governments.
“The enemy of my enemy is my friend” and “keep your friends close, keep your enemies closer” are equivalent to Iran/Russia relations.
In 2023, it is almost logical for Westerners that Russia and Iran will work together. Both countries are considered rogue by many Western countries, and harsh sanctions prevent either of them from selling their resources to the world. Both contain oil and gas reserves that the world desperately needs. However, their history is far from harmonious.
By the 1920s, both Great Britain and Russia were fighting for control of Iran’s resources. The Qajar dynasty would kneel down and give whatever foreign powers wanted in exchange for wealth and riches for their family. All this changed after the 1921 coup ended the Qajar dynasty and brought Reza Shah to power.
Reza Shah refused to compromise with foreign powers and focused on the growth of Iran. The Soviet Union was formed a year later, which caused the USSR to focus on internal growth as well. As Iran began to grow in importance to the West (mainly Great Britain and the United States), Reza Shah and his son (Mohammed Reza Shah, the last Shah of Iran) would use the West’s fear of communism to their advantage. If Iran didn’t get what it wanted from its Western trading partners, it would remind them who was in charge by making a small deal with the USSR.
Despite the once contentious history between these two nations, they seem to have found a common language: to see the West as an enemy.
Why will the new Stablecoin fail?
I made a high claim that the stablecoin experiment between Iran and Russia would fail and lead to their adoption of Bitcoin. How will it fail? No trust: never has been and never will be.
Trust can be undermined during network formation. While many Russian and Iranian leaders believe that their country’s best engineers can develop a product that can evade any enemy attack, what is to stop the other country from giving them backdoor access? What’s stopping someone from creating a way to double spend tokens? Now this is all speculation: I present a few potential flaws in this system – how many more can you think of?
The biggest question is about the gold reserves backing the stablecoin: Where will the gold be stored and who will verify that the listed amount of gold is still there? Given the lack of trust, no country can be expected to blindly accept the amount of gold claimed by the other (see The Bitcoin Standard for more on this topic), and sanctions prevent a reputable third party from acquiring it. involved (although China may fit into the puzzle here somehow).
As this very large and very important hurdle is overcome, another question will continue to arise: Why? Why should we do any of this when there is a cryptocurrency that has enough liquidity to meet their needs and doesn’t require trust on either side?
Both Iran and Russia have banned residents from using Bitcoin, but they have also changed their stances over time. It’s safe to say that both governments are still in the process of understanding the power and scope that cryptocurrencies offer. It’s also worth noting that if this joint effort is successful, it won’t be the first gold-backed cryptocurrency.
Both countries are still in the data collection phase, and if by some miracle a researcher comes across this article, let me make it plain and simple: History has proven that when given the opportunity to control the money, the people in charge will control the money. they manipulate money to their advantage.
There’s a reason the Roman Empire fell, and we don’t use guilders or pounds as our global currency. Instead of bringing this attraction into the equation, the only solution is to adopt a secure form of money that cannot be manipulated or inflated. Bitcoin is the inevitable money you are looking for. It’s up to you to get there before your enemies do.
This is a guest post by Q Ghaemi. The views expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.