Iran has a complicated relationship with cryptocurrencies that goes deeper the major headlines.
Sanctions and other socio-economic factors do not only impact the government and the broader economy. They also drive many ordinary Iranians into crypto usage to overcome challenges, and necessity breeds some remarkable invention in how this is often gone about.
In this report, we explore the impact of the current situation in Iran to understand how it affects the everyday use of crypto, the associated risks thereof and what this means for compliance teams monitoring Iran.
The report was compiled by Crystal’s VP of Intelligence, Nicholas Smart, and Rajat Ahlawat, APAC Research lead and expert on the Iranian crypto industry.
Fiat conversions to crypto in Iran restricted
In the aftermath of Iran’s early October 2024 missile attack on Israel, the Central Bank of Iran (CBI) restricted fiat Iranian Rials (IRR) to crypto conversions on the country’s primary electronic payment network, Shaparak. This was done to stem the depreciation of the fiat IRR and the damage this caused to the local economy.
A broader ban on deposits and withdrawals from crypto exchange accounts followed in late October and was reiterated in late December after the IRR lost 37% of its value against the US dollar during 2024.
These actions mean it was and still is difficult for local Iranians to access or convert their funds, as restrictions are sporadically removed and then reinstated.
By January 18, 2025, an estimated one million Iranians had been unable to buy cryptocurrencies to make payments for 23 days, as seen below:
While these bans and account freezes continue, Iran’s government is implementing a strict licensing regime to govern crypto exchanges and over-the-counter (OTC) desks.
The CBI approved the ‘Policy and Regulatory Framework for Cryptocurrencies’ in December 2024, in collaboration with the Ministry of Economic Affairs and Finance and with the blessing of the Cyberspace Council.
This policy framework includes invasive expectations of service providers to share confidential and private information about Iranians dealing in crypto, over and above standard security details.
The Iran Fintech Association objected, calling it a ‘red line for Iranian cryptocurrency platforms’ and refusing to provide such data if requested. This illustrates how progressive the Iranian crypto industry is, contrary to how Western media outlets often report on Iran, tending to focus on it as a monolithic society and writing from a sanctions risk perspective.
How sanctions influence the use of crypto in Iran
The use of cryptocurrencies in Iran is deeply impacted by US and other sanctions, reflecting the country’s vulnerable socio-political situation globally. This environment affects ordinary Iranians as much as it affects the intended target of the sanctions, which is the government.
Because of these factors, Iranians at every level of society are turning to cryptocurrencies to overcome the challenges posed, with as much as 22% of the population using or owning crypto.
- Firstly, Iranians use cryptocurrencies to make international purchases since sanctions have resulted in prohibitive restrictions on international money transfers and payment methods they can access.
- Secondly, Iranians prefer using cryptocurrencies pegged to stable currencies like the US dollar, which is why USDT is popular. This is a safer choice compared to investing in the IRR, which constantly fluctuates in value. Essentially, Iranians use crypto to hedge against rampant inflation.
Iranians found ingenious methods to bypass crypto restrictions
Investigations by Crystal Intelligence have revealed that certain Iranian government departments have used cryptocurrency for international payments, even though the ability of their citizens to do the same is heavily restricted. Additionally, in June 2024, Iran launched the digital Rial as a Central Bank Digital Currency (CBDC), which is currently in a lengthy and potentially unproductive pilot phase on Kish Island.
The aftermath of Binance’s plea agreement with the US Department of Justice in November 2023, regarding violations of sanctions by trading with customers in Iran, was disastrous for Iranian crypto users. This agreement prompted an exodus of international exchanges that were previously willing to engage with Iranian clients.
In October 2024, two blockchain intelligence platforms published wallet information and initiated a wallet identification bounty program for Nobitex, Iran’s largest cryptocurrency exchange. This action led to an increase in blacklisting, account freezes, and stricter Know Your Customer (KYC) processes for Iranian users, further isolating them from the international crypto community.
In response, Iranians found ingenious methods to bypass restrictions, including VPNs, fake IDs, and international financial intermediaries. Some underground operations offer full packages with foreign IBANs, SIM cards for OTPs and text messages, and residency documents to enable Iranians to access international crypto exchanges, bypassing KYC procedures with fake foreign ID documents.
“The reality here is that there’s a whole tranche of just very normal Iranian people who are using cryptocurrency, which isn’t as well understood and perhaps doesn’t get the same level of headlines [as the leadership of the state], but if you’re a VASP and you’re a compliance officer and you’re looking at this problem on a day-to-day basis, this is the information that you need to know.” Nicholas Smart, Crystal Director of Intelligence
Meanwhile, the impact of sanctions has prompted other resourceful uses of technology to trade in cryptocurrencies, including the digital currency gaming tool Hamster Combat, which has become popular as ordinary Iranians and scammers alike seek new ways to make money.
What is the impact on cryptocurrency mining?
Estimates from 2022 indicate that Iran currently contributes 3.1% of the world’s Bitcoin mining output. This is down from 4.67% in 2021 as the country is plagued by rolling blackouts and power outages.
Conflict persists between the state-owned power service provider and distributor, Tavanir, and miners. Tavanir believes energy-intensive Bitcoin mining is a major contributor to power issues and the miners are stealing about 2000 megawatts of Iran’s electricity. Conversely, the miners argue that failing infrastructure and mismanagement are the main cause of power supply issues.
Although Tavanir charges the highest tariffs for cryptocurrency mining among Iran’s power-intensive industries, the miners have a workaround. Because Tavanir supplies mosques and other religious institutions with free electricity, Bitcoin mining outfits set up and run their operations from within these premises.
Key recommendations for compliance officers and investigators
When blockchain analytics firms started publishing and flagging Iranian wallet addresses, compliance teams and investigators had the good fortune of having all the intelligence at hand.
Iran has a nationwide, growing, and dynamic network of crypto users. Crypto exchanges quickly began altering their infrastructure to evade detection. This allows users to frequently change their hot wallet addresses, making it difficult to flag and monitor transactions.
The best defence against this is to have and maintain thorough coverage of the industry in Iran, and to actively identify emerging trends and risks. This includes tracking social media and forums where users share new wallet addresses and discuss workaround strategies, and is a time-intensive, ongoing task.
Continuous monitoring of this dynamic landscape is essential
Compliance officers and investigators have observed in this report that the Iranian crypto industry is both evolving and complex.
To fully understand the risks associated with engaging in this industry, it is crucial to comprehend both the micro issues, such as individuals’ methods of evading sanctions, and the macro issues, such as the tightening of government regulations.
Overall, continuous monitoring of this dynamic landscape is essential for staying informed and effectively managing risks.
