The Iranian government has been conducting research into the economic and infrastructural aspects of preparing for bitcoin use in its country. According to the ministry of information technology, “arrangements are being made” to put together the infrastructure for the digital currency “as early as possible.”
Iran’s Deputy Minister of Information and Communication Technology, Amir Hossein Davaee, reportedly said in an interview with Shargh newspaper last week:
The ministry of communications and information technology has already conducted a number of research studies as part of [its] efforts to prepare the infrastructure to use bitcoin inside the country.
He said that the cryptocurrency has two aspects, economic and infrastructural, adding that adopting it in Iran will end up being in the general interest of the country. “We, as the main centre in Iran dealing with the country’s technology developments, have taken very seriously the issue of preparing the infrastructure for the new currency,” he was quoted saying, noting that:
Arrangements are being made with the related organizations to put together the infrastructure as early as possible.
Although the Iranian central bank deems commerce done with bitcoin “not legal,” which discourages local businesses from embracing the digital currency, there has been no law passed by the government so far specifically banning the use of bitcoin as a payment method. Meanwhile, the Iranian government has been working on proposed regulations for digital currencies. News.Bitcoin.com reported in June on draft proposals by Iran’s National Center of Cyberspace.
Residents of Iran rely on Localbitcoins as well as Australian-based peer-to-peer marketplace Coinava which connects buyers and sellers in Iran without directly buying or selling bitcoins. Additionally, Iran’s Bitcoin group on Facebook is active with over 29,000 members at present.
How Bitcoin Affects Iranian Economy Currently
While many companies in Iran have used bitcoin, they fear the tax laws related to it and have refrained from revealing their identities, YJC news agency explained.
The publication asked Iranian economist Morteza Imani-Rad several questions regarding the impact of bitcoin on the country’s economy. He said, “this money is not legal in Iran and bitcoin transactions are not legal and legally unrecognizable, so we do not expect them to have any effect on the Iranian economy.” He also believed that the market cap of bitcoin was too small to facilitate buying and selling of international oil contracts.
Citing that many websites offering information on Bitcoin are blocked by the country’s firewall, he reiterated that “Bitcoin cannot be easily installed in Iran and therefore cannot have an impact on the Iranian economy.” However, he noted that there are many international bitcoin dealers that provide service to Iranians through forex trading, even though “entering the forex trading market is not that easy” in Iran since it is “very restrictive.” He further asserted:
Bitcoin is ongoing and may become more common. If this happens, then the government may be forced to use this money, especially as the money transfer through banks for Iran, if it remains a part of the sanctions.
Bitcoin is a form of digital currency, created and held electronically. No one controls it. Bitcoins aren’t printed, like dollars or euros – they’re produced by people, and increasingly businesses, running computers all around the world, using software that solves mathematical problems.
The aim of bitcoin—as envisaged by Satoshi Nakamoto, its elusive creator—is to provide a way to exchange tokens of value online without having to rely on centralised intermediaries, such as banks. Instead the necessary record-keeping is decentralised into a “blockchain”, an ever-expanding ledger that holds the transaction history of all bitcoins in circulation, and lives on the thousands of machines on the bitcoin network. But if there is no central authority, who decides which transactions are valid and should be added to the blockchain? And how is it possible to ensure that the system cannot be gamed, for example by spending the same bitcoin twice? The answer is mining, according to the Economist magazine
Every ten minutes or so mining computers collect a few hundred pending bitcoin transactions (a “block”) and turn them into a mathematical puzzle. The first miner to find the solution announces it to others on the network. The other miners then check whether the sender of the funds has the right to spend the money, and whether the solution to the puzzle is correct. If enough of them grant their approval, the block is cryptographically added to the ledger and the miners move on to the next set of transactions (hence the term “blockchain”). The miner who found the solution gets 25 bitcoins as a reward, but only after another 99 blocks have been added to the ledger. All this gives miners an incentive to participate in the system and validate transactions. Forcing miners to solve puzzles in order to add to the ledger provides protection: to double-spend a bitcoin, digital bank-robbers would need to rewrite the blockchain, and to do that they would have to control more than half of the network’s puzzle-solving capacity. Such a “51% attack” would be prohibitively expensive: bitcoin miners now have 13,000 times more combined number-crunching power than the world’s 500 biggest supercomputers.
14 million bitcoins have been mined so far. This represents two thirds of the 21 million bitcoin limit. According to The Genesis Block 10% of Bitcoins haven’t been active since 2012, and a substantial 35% haven’t been spent since 2011. This second number is most likely to consist of lost coins.
WEAKNESS OF SYSTEM
Clever though it is, the system has weaknesses. One is rapid consolidation. Most mining power today is provided by “pools”, big groups of miners who combine their computing power to increase the chance of winning a reward. As mining pools have got bigger, it no longer seems inconceivable that one of them might amass enough capacity to mount a 51% attack. Indeed, in June 2014 one pool, GHash.IO, had the bitcoin community running scared by briefly touching that level before some users voluntarily switched to other pools. Some worry that mining will become concentrated in a few countries where electricity is cheap, such as China, allowing a hostile government to seize control of bitcoin. Others predict that mining will end up as a monopoly—the exact opposite of the decentralised system that Mr Nakamoto set out to create.