• Wednesday, July 24, 2019

How Iran is using Cryptocurrency to evade US led financial system

Discussion in 'Iranian Defence Forum' started by Arminkh, Jul 12, 2019.

  1. Arminkh

    Arminkh SENIOR MEMBER

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    https://www.fdd.org/analysis/2019/07/11/crypto-rogues/

    Executive Summary
    In the 1800s, few economists imagined that the U.S. dollar would eclipse the British pound sterling as the world’s leading currency in the next century. Nor could most foresee how American banks, businesses, and U.S. foreign policy itself would drive much of the global economic order well into the next millennium. The primacy of the dollar has enabled U.S. policymakers to deploy tools of financial coercion and economic sanctions to promote U.S. national security interests without relying solely on diplomacy and military action. For decades, U.S. adversaries have been trying to evade and undermine this power, but there has been no way to conduct significant international commerce without moving through the pipes of the U.S.-led global financial system.Center For a New American Security, April 2019. (https://s3.amazonaws.com/files.cnas...omic_Dominance-final.pdf?mtime=20190423154936)' data-hasqtip="0">1 Now, however, new pipelines are being built.2

    Efforts are underway around the world to build new systems for transferring value that work outside of conventional banking infrastructure. The Bitcoin software code enables users to send non-copyable digital assets, known as cryptocurrency or digital currency, to another person without an intermediary, removing the role of the traditional banking sector. The transaction history is stored on an immutable, distributed ledger known as a blockchain, with software code that typically is openly sourced and free. Blockchain is gaining popularity in the U.S., with cryptocurrency startups growing and some large financial institutions piloting elements of the innovative software to increase payment efficiencies. While cryptocurrencies and blockchain technology may benefit millions of consumers by reducing the role of intermediaries and increasing transparency, U.S. adversaries see this development as an opportunity to reduce Washington’s ability to impose economic sanctions, which depend on intermediaries like traditional banks to monitor compliance.

    At the moment, blockchain platforms are experimental and small in scale compared to the conventional financial system, but they are evolving quickly. Blockchain technology may be the innovation that enables U.S. adversaries for the first time to operate entire economies outside the U.S.-led financial system. These governments, therefore, are prioritizing blockchain technology as a key component of their efforts to counter U.S. financial power. Russia, Iran, and Venezuela have initiated blockchain technology experiments that their leaders paint as tools to offset U.S. financial coercive power and increase sanctions resistance. China is also wary of U.S. financial power and the ever-present threat of sanctions against Chinese officials.The Wall Street Journal, August 29, 2018. (https://www.wsj.com/articles/lawmak...injiang-camps-1535554800?ns=prod/accounts-wsj)' data-hasqtip="2">3 The efforts of these four nations go beyond mere sanctions evasion, typically characterized by sanctioned entities hiding or disguising business and financial operations in order to continue operating within the global financial system. Instead, these nations seek to reduce the potency of unilateral and multilateral sanctions by developing alternative payment systems for global commerce. It is also notable that China, Iran, and Venezuela, in particular, have restricted their citizens’ access to existing cryptocurrencies as they explore developing a state-backed digital currency.

    Blockchain sanctions resistance is a long-term strategy for U.S. adversaries. None of the blockchain platforms currently operational could support the volume and speed of financial transactions moving through the conventional banking system. And most importantly, because blockchain ventures currently depend on real-world fiat currency and conventional bank accounts, U.S. sanctions pressure for now can reach businesses in the cryptocurrency and blockchain tech space.

    However, the U.S. position of influence is not necessarily permanent. Technology has created a potential pathway to alternative financial value transfer systems outside of U.S. control. The target timeline may be two to three decades, but these actors are developing the building blocks now. They envision a world in which cryptocurrency technology helps them eclipse U.S. financial power, much the way that the dollar once eclipsed the British pound. Washington, therefore, must understand the benefits and threats posed by new financial technologies, maintain the integrity of global finance, and cultivate the expertise and influence to lead in what is becoming an international crypto race. The U.S. has the opportunity to harmonize digital currency technology with the law-based financial order if it stays ahead of its adversaries’ attempts at building the financial system of the future.

    Overview of Findings
    • Venezuela’s national cryptocurrency experiment under the Maduro regime has been a debacle. The petro coin was more of a propaganda effort than a technical or financial accomplishment. The Maduro regime did not build the economic or technical infrastructure to make the petro useful to citizens and international trading partners. The impact of U.S. sanctions and the Maduro regime’s own illegitimacy ensured the coin’s failure. However, the petro experiment served as a case study for other regimes to learn what not to do in deploying a blockchain sanctions resistance plan.
    • Russian financial institutions are launching multiple blockchain technology projects to float corporate bonds and hold digital assets in new depository platforms. A crypto-ruble is unlikely in the short term given legislative and regulatory hurdles, but the Kremlin is looking to develop a digital currency that could be used for trade with regional partners and like-minded governments outside the SWIFT financial messaging system.
    • Iran’s central bank is highly motivated to develop an alternative to SWIFT, especially after Washington withdrew from the Iran nuclear deal in 2018. Tehran is investing in blockchain pilot projects and promoting blockchain technology education at the university level. Russia has been a strong ally in the plan for blockchain resistance. Iran’s approach is gradual, with several blockchain pilots in partnership with Iran’s private tech sector in the works.
    • China is less threatened by U.S. sanctions than other adversaries, but displacing U.S. influence in the global financial system is a national priority. China’s central bank is devoting significant resources and expertise to blockchain research and digital currency development. China’s engagement in blockchain payment systems may be the biggest variable in sanctions resistance efforts. China’s buy-in, if it involved moving its trade onto a blockchain platform outside the conventional system, would be a game-changer.
    Signposts: Possible Scenarios That Would Make Blockchain Sanctions Resistance a Larger Threat
    • A U.S. adversary convinces other nations to use a state-based digital currency to conduct trade in the adversary’s major commodity export, such as oil.
    • An independent cryptocurrency such as Bitcoin gains wide adoption in commerce and becomes more relevant to the global financial system. Then, a U.S. adversary begins to build significant reserves in the cryptocurrency. The state thus uses its holdings to gain more influence in the global financial system.
    • While planning to create a state-based digital currency, a U.S. adversary makes progress in developing digital currency wallet infrastructure. The nation develops a state-based digital wallet system where citizens and foreigners can hold and trade the digital currency and use it for transactions with domestic companies.
    • A U.S. adversary has enough success with blockchain technology in its domestic banking system that it exports its platform to other nations to integrate into their financial sectors. Less democratic governments – who have fewer regulatory and legislative hurdles – may be the most likely to accept new financial platforms.
    Iran: A Veteran Sanctions Evader Adds Blockchain to its Toolkit
    Facing U.S. sanctions for 40 years, Iran has developed extensive evasion networks and methods.The Atlantic, January 4, 2018. (https://www.theatlantic.com/interna...old-sanctions-nuclear-zarrab-atilla/549665/); Emanuele Ottolenghi, “Snap-back: A Journey Through Iranian Sanctions Evasion in Georgia,” Tablet, July 1, 2015. (https://www.tabletmag.com/jewish-news-and-politics/191903/iranian-sanctions-evasion)' data-hasqtip="64">65 Even so, the U.S. has demonstrated that it can still impose substantial costs on Iran by cutting it off from the global financial system. SWIFT disconnected more than two dozen Iranian banks in early November 2018,Reuters, November 5, 2018. (https://www.reuters.com/article/us-...anks-access-to-messaging-system-idUSKCN1NA1PN)' data-hasqtip="65">66 just days after the U.S. Treasury threatened to impose sanctions on the Brussels-based messaging service if it continued servicing designated Iranian financial institutions.U.S. Department of State, November 2, 2018. (https://www.state.gov/briefing-on-iran-sanctions/)' data-hasqtip="66">67 Sanctions have impacted Iran’s ability to export crude oil, leading to a historic low of less than 500,000 exported barrels per day.Foundation for Defense of Democracies, June 4, 2019. (https://www.fdd.org/analysis/2019/06/04/sanctions-drive-iranian-oil-exports-to-historic-lows/)' data-hasqtip="67">68 Iran has also faced a persistent inflation challenge, peaking at 51.4 percent in March of 2019.Foundation for Defense of Democracies, April 30, 2019. (https://www.fdd.org/analysis/2019/04/30/inflation-in-iran-is-on-the-rise/)' data-hasqtip="68">69 Threatening a deep recession, Iran’s record-high inflation is pushing Iranian citizens to trade in their rial for less volatile currencies.Foundation for Defense of Democracies, May 22, 2019. (https://www.fdd.org/analysis/2019/0...ns-iran-sanctions-exert-unprecedented-impact/)' data-hasqtip="69">70

    Blockchain technology provides Tehran an opportunity to build new financial infrastructure that is immune from Washington’s most effective sanctions.Forbes, August 15, 2018. (https://www.forbes.com/sites/yayafa...-the-regime-in-iran-goes-crypto/#4d9785ec3dc6)' data-hasqtip="70">71 While acknowledging that it was “immature and farfetched” to suggest that blockchain technology could help Iran evade sanctions immediately, Ali Divandari, the head of the Central Bank of Iran’s Monetary and Banking Research Institute and himself a target of U.S. sanctions,www.treasury.gov/press-center/press-releases/pages/tg355.aspx)' data-hasqtip="71">72 said in January 2019, “Blockchain can truly revolutionize the concept of money.”Eghtesad Online (Iran), January 22, 2019. (www.en.eghtesadonline.com/Section-economy-4/27918-central-bank-of-iran-official-blockchain-no-solution-for-sanctions)' data-hasqtip="72">73 Divandari also asserted that blockchain’s technical separation from banks’ conventional payment systems theoretically would shield them from U.S. sanctions pressure.

    Hints of how Iran could use blockchain technology to circumvent U.S. sanctions emerged in early 2017 when Swedish blockchain startup Brave New World InvestmentsBrave New World Investments (Sweden), accessed January 30, 2019. (http://www.bnw.investments/)' data-hasqtip="73">74 was formed to facilitate European investment in Iran via Bitcoin.CoinDesk, April 12, 2017. (https://www.coindesk.com/sweden-incorporates-iran-investment-firm-using-only-bitcoin)' data-hasqtip="74">75 The company received bitcoins from investors and planned to convert them into Iranian rial to purchase shares of local companies on the Tehran Stock Exchange. Swedish banks, however, refused to allow Brave New World to open accounts because of fears of secondary sanctions from U.S. financial authorities. So the firm began operations purely off of its digital currency holdings.Brave New World Investments (Sweden), accessed January 30, 2019. (http://www.bnw.investments/)' data-hasqtip="75">76 A year later, Brave New World suspended its Iranian investment plans after the Central Bank of Iran (CBI) banned cryptocurrency trading for a time. According to the firm, even before the official ban, it had not made investments because the company was uncertain on whether or not cryptocurrency use would be banned in the country.Brave New World Investments (Sweden), April 23, 2018. (http://www.bnw.investments/index.ph...dons-iran-ambitions-after-cryptocurrency-ban/)' data-hasqtip="76">77 It is noteworthy that uncertainty concerning the Iranian government’s regulation of blockchain technology at the time was a bigger hurdle to Brave New World’s business than the lack of a Swedish bank account.

    CBI is investing in blockchain technology infrastructure. With CBI’s support, Sharif University of Technology established Iran Blockchain Labs (IBL) in 2017.Linkedin, accessed March 6, 2019. (https://www.linkedin.com/company/iranblockchainlabs/about/)' data-hasqtip="77">78 Sharif appears to be the hub for blockchain education in the country. Its lab does research, consulting, and education on blockchain technology and includes several European blockchain experts as external associates.Iran Blockchain Labs, accessed January 30, 2019. (http://blockchainlabs.ir/#about)' data-hasqtip="78">79 IBL has hosted periodic workshops about cryptocurrencies and blockchain technology. The speakers often include professors and graduate students from other Iranian universities, covering topics ranging from the basics of cryptocurrency mining to how blockchain can enhance Iran’s payment systems.Iran Blockchain Labs, accessed January 30, 2019. (http://blockchainlabs.ir/#collaboration)' data-hasqtip="79">80

    CBI also reportedly signed a 2018 agreement with Iran’s vice-presidency for science and technology affairs and with Iran’s governing body for over-the-counter securities exchange, Fara Bourse, to develop financial technology (fintech) and a cryptocurrency. An accompanying announcement said that the government would assemble experts and financiers to guide Iran’s progress on blockchain developments and that cryptocurrencies could facilitate international trade.ISTI (Iran), June 3, 2018. (http://en.isti.ir/index.aspx?fkeyid=&siteid=30&pageid=6588&newsview=35724)' data-hasqtip="80">81 A few months earlier, the vice-presidency had announced support for private cryptocurrency development, noting that there should be “at least one Iranian product” in the digital currency realm.ISTI (Iran), April 22, 2018. (http://en.isti.ir/index.aspx?fkeyid=&siteid=30&pageid=6588&newsview=33690)' data-hasqtip="81">82

    Tehran also announced in late July 2018 that it was developing a national cryptocurrency to offset the impact of impending U.S. financial sanctions. Iranian state media reported that the nation had already built the main elements of a cryptocurrency token that would be used for domestic banks to settle transactions. At the time, several Iranian technology companies were working with the central bank to iron out the kinks.Press TV (Iran), July 25, 2018. (https://www.presstv.com/Detail/2018/07/25/569249/Iran-closer-to-own-digital-money-as-sanctions-loom)' data-hasqtip="82">83

    In August 2018, CBI announced it would issue Iran’s sovereign cryptocurrency token. The implementation plan would involve two phases: In the first phase, the token would be used solely for domestic bank-to-bank payments; in the second, it would be available for broader retail payments.IBENA (Iran), August 27, 2018. (http://en.ibena.ir/news/90482/Iranian-Cryptocurrency-s-Features-Revealed)' data-hasqtip="83">84 Other Iranian government statements about cryptocurrency show that Tehran’s ultimate aim with blockchain technology is to help facilitate international trade outside of the conventional banking system.

    There are several projects underway related to foreign trade, and building new pipelines for Iran’s banking sector appears to be the focus.8th Annual Conference on Electronic Banking and Payment Systems (Iran), accessed March 6, 2019.


    (
    http://conf.mbri.ac.ir/ebps8/Mobile/News_en/294135)' data-hasqtip="84">85 One initiative called Borna features a partnership between CBI and the Informatics Services Corporation, which develops banking payment systems for Iran.Informatics Services Corporation (Iran), accessed January 30, 2019. (https://www.isc.co.ir/portal/home/?67337/About-Us)' data-hasqtip="85">86 CBI provides the funding though its partnership with Informatics to Iranian blockchain startup Areatak.CoinDesk, February 12, 2019. (https://www.coindesk.com/iran-blockcain-bank-bitcoin-crypto-token)' data-hasqtip="86">87 Media reporting indicates that a team from Areatak is working inside the Informatics office to develop an identity verification system as part of the Borna project.[/note] The Borna project uses Hyperledger to create a private blockchain platform that operates without cryptocurrency mining.IBENA (Iran), August 27, 2018. (http://en.ibena.ir/news/90482/Iranian-Cryptocurrency-s-Features-Revealed)' data-hasqtip="87">88 Indeed, because the central bank would control and disburse this cryptocurrency, mining is unnecessary.89

    A separate project is led by the Iranian startup Kuknos (Persian for “Phoenix”). Kuknos is developing a gold-backed cryptocurrency called the Peyman, which would be used initially by four Iranian banks to allow for digitally tokenizing real-world assets. Three of the four banks are under U.S. sanctions.The Hill, February 15, 2019. (https://thehill.com/opinion/technol...before-using-blockchain-to-evade-us-sanctions)' data-hasqtip="89">90

    The Peyman token is built on the Stellar blockchain protocol.Al-Monitor, February 28, 2019. (https://www.al-monitor.com/pulse/or...cryptocurrency-blockchain-kuknos-phoenix.html)' data-hasqtip="90">91 The Stellar system is an open-source blockchain for creating payment infrastructure. Although the Iranian government has not formally endorsed the Peyman, Kuknos has signed multiple MOUs with various government technology and finance groups.Way 2 Pay (Iran), February 17, 1397. (https://way2pay.ir/131569); “Iranian Banks Lay Plans to Tokenize Gold, Real Estate, Assets on the Blockchain,” Trustnodes, March 2, 2019. (https://www.trustnodes.com/2019/03/...ize-gold-real-estate-assets-on-the-blockchain)' data-hasqtip="91">92

    Unlike the Maduro regime in Venezuela, the Islamic Republic of Iran is not first creating a national coin and then pushing usage; instead, it is promoting pilot projects to determine how a blockchain-based system could work practically. These projects will likely inform the design and management of Iran’s eventual sovereign cryptocurrency.

    In January 2019, the Central Bank announced it would be the exclusive entity to operate the national cryptocurrency and future “regional cryptocurrencies.”Al-Jazeera (Qatar), January 29, 2019. (https://www.aljazeera.com/news/2019...aft-rules-cryptocurrency-190129051653656.html)' data-hasqtip="92">93 Around the same time, the acting head of Iran’s Trade Promotion Organization said, “Iran is negotiating the use of cryptocurrency in its financial transactions with eight countries” as part of its aim to “circumvent U.S.-led sanctions.”Tehran Times (Iran), January 28, 2019. (https://www.tehrantimes.com/news/432400/Talks-with-8-countries-over-using-cryptocurrency-in-monetary)' data-hasqtip="93">94 The eight were Austria, Bosnia, Britain, France, Germany, Russia, South Africa, and Switzerland, all of which had reportedly sent representatives to Iran to discuss the effort. However, there has been little corroboration of such talks and no additional details about Iran’s plan.
     
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  2. zartosht

    zartosht FULL MEMBER

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    if crypto-currency becomes a threat to the USD. the US government will sabotage its use in the US and kill it.

    Nixon performed the scam of century when he took the USD off gold reserve and made it a completely artificial printed currency. the petro arabs saved the US by only demanding payment in USD and making it the de-facto world currency.
     
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  3. Arminkh

    Arminkh SENIOR MEMBER

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    They can't. The approach Iran, China and Russia have is not hiding their transactions. They are trying to substitute the current financial system for international transactions with digital currency. When that happens, it doesn't matter what US does internally or externally as they won't have any control over it in the rest of the world.

    It will also restrict the control they have over the transactions today as they will not know who paid whom anymore as it will not go through traditional banking routes. So their financial hegemony will be substantially weakened.
     
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  4. Kabira

    Kabira ELITE MEMBER

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    Its because dollar is much more stable backed by biggest and technologically advanced economy on planet. Do you honestly believe US can print as many as possible and not have any affect on exchange rate?

    Why would arabs take in every random currency to trade in oil.
     
  5. TheImmortal

    TheImmortal FULL MEMBER

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    US became the world currency shortly after WW2 ended. Not when Arabs decided to make it “the de facto world currency”. You forget oil was already an important commodity by WWI let alone WW2 when Japan attacked US due to oil sanctions placed on it.
     
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  6. zartosht

    zartosht FULL MEMBER

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    if it becomes a challenge to the USD dominance on the financial system. the US government will ban its use in the US and its de facto puppets. and that will all but kill crypto currency as its no longer a valid payment method in half the world. it will go to complete shit. there are legitimate threats long term to USD, but crypto is not it.
    before 1971 the USD was backed by the gold standard. that means for every USD out there there had to be equal value gold in American reserves. the currency had actual value attached to it.

    by 1971 the US was having difficulty financing their empire. so Nixon took a very controversial step and disconnected the USD from the gold.

    it no longer was a real currency but literally paper printed by the US government at will. people predicted a complete collapse as a result of this.

    except the US successfully forced the arabs to develop the "petro dollar". Iran at the time was also a puppet who adopted this. those countries now exclusively accepted USD for oil. That meant the entire world energy trade pretty much was conducted in the USD.

    something like 30-40% of world trade at the time. that forced countries to keep trillions of dollars in their reserve. this helped the US government print money and have it subsidized by foreign countries.

    2 arab leaders publicly tried to break from the petro dollar... and they were both killed by the US (saddam and gaddafi)
     
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  7. TruthHurtz

    TruthHurtz FULL MEMBER

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    Trump just posted about cryptocurrency recently on his Twitter.
     
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  8. Arminkh

    Arminkh SENIOR MEMBER

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    Lol, I saw it. He probably is a member of this forum.
     
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  9. mohsen

    mohsen SENIOR MEMBER

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    Fall of U.S dollar is inevitable, crypto-currency is Americans solution for the aftermath and saving themselves.
    crypto-currency is even more dangerous than real currencies, can be tracked effectively and since U.S is dominating the Internet, will become their new domination tool.

    And that's beside the fact that any currency which is not based on real valuable assets, is subject to fail, sooner or later and against Islamic teachings.
     
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