The head of St. Louis Federal Reserve, James Bullard, told CNBC on Tuesday that Bitcoin was not a challenge to the US dollar’s global dominance. Not that I’d ever (confidently) disagree with the head of a federal reserve, but Bullard isn’t entirely correct. To prove my point on Bullard’s inaccuracies and perhaps overconfidence on the US dollar, I want to shed a limelight on Iran.
Ever since the Trump administration withdrew from the “Iran Nuclear Deal” in 2019, Iran’s economy near collapsed, with sanctions halting exports and its currency losing about 57% of value next to the US dollar.
In comes cryptocurrency for obvious reasons.
The Iranian government and citizens are turning to Bitcoin like wildfire, seeing crypto as a potential way to solve their country’s economy and resolve their dependence of western economies. And just in case James Bullard ever comes across this blog, the TLDR; Iran is challenging the US dollar and sidestepping sanctions with crypto.
In 2018, the Central Bank of Iran banned its banks from dealing or promoting any form of cryptocurrencies, which didn’t exactly last long. By early 2019 regulations were issued, and Iran legalized all forms of cryptocurrencies, permitting possession and “mining”.
I could go into the complexities of Bitcoin mining, but here’s what you need to know: it’s costly and uses a lot of energy. With mining, you earn cryptocurrency without having to put down money for it, receiving Bitcoin as a reward for completing blocks of verified transactions added to blockchain. If you’re new and this sounds complicated, that’s because it is.
Now imagine an entire country investing equipment and energy centers to mine Bitcoin. The result is nothing short of major cities plunging into outages, leaving millions without electricity for hours. Bitcoin processing centers require an immense amount of electricity to power special computers while keeping them cool, which took a toll on Iran’s power grid.
Here’s the plot twist: experts claim that Bitcoin consumes less than 2% of Iran’s energy production, so perhaps blaming Bitcoin is a scapegoat for decades of poor management and majority of the population staying home due to the pandemic, thus using more energy.
The Iranian government legally authorized special centers to mine Bitcoin, but allegedly shut down 1,600 of them across the country. Will Iran most likely reopen mining centers? Absolutely, because both government and citizens are well aware that Bitcoin’s permission of anonymous online transactions will allow them to bypass sanctions that are the core reason of their declining economy. Not to sound like the Perez Hilton for Iranian Bitcoin farms, but it gets more interesting. A lot of these mining farms are owned by Chinese companies that strived to keep their presence in Iran a secret.
I do believe Iran’s government is back warded, manipulative, and counterproductive. On one end they’re permitting the use of cryptocurrency with restrictions, then they play this blame game on Bitcoin’s energy use and temporarily shut down mining farms. But I have to give them credit for their use of cryptocurrency as a form of sidestepping sanctions due to their lack of access to international banking networks. Attracting collaboration interests from other countries via blockchain platforms is economic progress.
What all this does is substitute any necessity to use the US dollar exchange in the international market, because with Bitcoin, there is no nationalism attached. James Bullard’s entire statement is false (in a sense) because Bitcoin is literally unattached to the US dollar. What we are seeing is a cultural shift in a country that has intertwined Islam and politics to run its laws, but there’s nothing in religion that says crypto is bad or that crypto isn’t allowed to be used. Perhaps the use of cryptocurrency is an open doorway to progress Iran’s economy and politics. And I’m not one who is certain on a lot of things, but I can confidently say (or assume, whatever), that whatever countries utilize Bitcoin the fastest will see more benefits. It’s like seeing the iPhone 12 for so many years and deciding to stick with a Nokia.
We are currently experiencing a digital revolution that proves technology to be exponential, and countries looking to evade U.S. sanctions realize that the upcoming crypto revolution will move faster. If nationalism isn’t attached to Bitcoin, then no country can have a global dominance on this new currency.
You’re wrong, James.