Iran’s Crypto Strategies Reveal a Pragmatic State Centric Approach to Digital Finance

Iran’s cryptocurrency strategies have evolved significantly in recent years, driven by the need to navigate stringent U.S. and international sanctions, stabilize its economy, and adapt to global financial trends. These strategies can be broadly categorized into efforts to bypass sanctions, regulate domestic crypto markets, and explore state-backed digital currencies, all while managing economic and geopolitical challenges. Iran has leveraged cryptocurrencies as a tool to evade U.S. sanctions, which have severely restricted its access to the global financial system, particularly for oil exports and international trade.

By using decentralized digital assets, Iran can conduct cross-border transactions without relying on traditional banking networks dominated by the U.S. dollar. For instance, Iran has used cryptocurrencies to facilitate imports, such as a notable $10 million import order in 2022, and to settle trade with partners like Russia, China, and Turkey. This approach allows Iran to convert its energy resources—abundant oil and natural gas—into digital assets, which are then used to purchase goods or services globally. The pseudonymous nature of cryptocurrencies, while not fully anonymous, provides a layer of obfuscation that complicates sanctions enforcement, though it also raises compliance risks for international partners wary of U.S. penalties.

This strategy, however, is not without challenges. The volatility of cryptocurrencies like Bitcoin poses risks to trade stability, and many potential trade partners lack legal frameworks to accept crypto payments, forcing Iran to rely on intermediaries in crypto-friendly jurisdictions or proxy companies. Moreover, the U.S. has intensified efforts to monitor and sanction crypto-related activities, targeting exchanges and entities that facilitate transactions with sanctioned jurisdictions, as seen in actions against platforms like Binance, which processed billions in Iranian transactions despite sanctions.

Iran has capitalized on its cheap, subsidized electricity—derived from its vast oil and gas reserves—to become a significant player in Bitcoin mining, accounting for an estimated 4.5% of global mining activity at its peak. This strategy serves dual purposes: generating revenue and bypassing sanctions. By mining Bitcoin, Iran converts its energy surplus into a digital asset that can be used internationally, effectively “exporting” energy in the form of cryptocurrency without triggering sanctions on oil exports. The government has formalized this approach by legalizing mining in 2019, requiring miners to obtain licenses, pay higher electricity tariffs, and sell mined Bitcoin to the Central Bank of Iran (CBI) for use in state-sanctioned trade.

However, this strategy has faced domestic challenges, including power shortages exacerbated by illegal mining operations, which have strained Iran’s electricity grid, especially during heatwaves. The government has responded with crackdowns on unlicensed miners and even offered bounties for reporting illegal activities, but these measures highlight the tension between economic necessity and infrastructure limitations. Additionally, the involvement of Chinese mining firms, attracted by cheap energy, has raised concerns about foreign influence and potential sanctions risks for international financial institutions engaging with Iranian crypto transactions.

Iran’s domestic cryptocurrency market has seen significant growth, with estimates suggesting up to 22% of the population owns or uses crypto, driven by economic instability, rampant inflation, and a plummeting rial. Cryptocurrencies, particularly stablecoins like Tether (USDT), are used by ordinary Iranians to hedge against inflation, make international purchases, and move capital abroad, especially as sanctions restrict access to traditional financial services. The CBI has imposed strict regulations to control this market, including banning rial-to-crypto conversions on domestic exchanges at various points, most recently in late 2024, to prevent capital flight and further depreciation of the rial, which hit a record low of over 940,000 to the U.S. dollar in early 2025.

The government has also introduced a licensing regime for crypto exchanges and over the counter (OTC) desks, requiring transparency in transactions and invasive data-sharing on users, which has drawn objections from the Iran Fintech Association over privacy concerns. Major domestic exchanges like Nobitex, which handles the majority of Iranian crypto volume, are subject to these regulations, while smaller exchanges have faced closures or compliance pressures. These measures reflect a broader strategy to integrate cryptocurrencies into a state-controlled financial system, balancing economic necessity with the need to maintain oversight and prevent sanctions evasion from being traced back to state actors.

Iran has explored the creation of a national digital currency, the “digital rial,” as part of its cryptocurrency strategy. Launched in a pilot phase on Kish Island in 2024, this CBDC aims to enhance state control over digital transactions, reduce reliance on volatile global cryptocurrencies, and potentially facilitate sanctioned trade. Unlike decentralized cryptocurrencies, the digital rial is centrally issued and backed by the CBI, mirroring the traditional rial’s value, and is intended to replace cash in electronic transactions.

This move aligns with global trends, such as China’s digital yuan, but is primarily geared toward reinforcing state authority rather than fostering financial decentralization. The effectiveness of the digital rial remains uncertain, as its pilot phase has been criticized as unproductive, and its utility for international trade is limited by the same sanctions that hinder traditional banking. Furthermore, the digital rial’s centralized nature contradicts the original ethos of cryptocurrencies, potentially alienating domestic users who value decentralization as a hedge against government control.

The U.S. withdrawal from the Joint Comprehensive Plan of Action (JCPOA) in 2018 and subsequent reimposition of sanctions intensified Iran’s economic isolation, pushing it toward alternative financial systems. The government’s crypto policies are also influenced by deteriorating economic conditions—marked by a widening budget deficit, escalating regional conflicts, and the weakening of its “axis of resistance”—as well as the need to counter U.S. policies, such as the “maximum pressure” campaign under President Donald Trump.

Iran’s collaboration with BRICS nations, particularly Russia and China, to develop payment mechanisms outside the U.S. dollar system, including potential stablecoin or CBDC-based trade settlements, further underscores its strategic shift toward digital finance. However, these strategies carry significant risks. The U.S. and its allies closely monitor Iran’s crypto activities, raising the specter of secondary sanctions on entities that facilitate Iranian transactions, as evidenced by past actions against exchanges and individuals. Domestically, the government’s heavy-handed regulation and restrictions on crypto use have sparked resistance from the fintech community and ordinary citizens, who see cryptocurrencies as a lifeline in a sanctions-stricken economy.

Iran’s cryptocurrency strategies reveal a pragmatic, state-centric approach to digital finance, prioritizing sanctions evasion and economic survival over the decentralized ethos of cryptocurrencies. While innovative, these strategies are not a panacea. The reliance on volatile assets like Bitcoin for trade introduces financial risks, and the domestic crypto market’s growth is constrained by regulatory overreach and infrastructure challenges. Moreover, Iran’s strategies may reinforce the narrative of cryptocurrencies as tools for illicit finance, fueling global regulatory crackdowns that could undermine their utility for sanctioned states.

Iran’s crypto policies challenge the U.S.-led financial order, but their success depends on the cooperation of trade partners and the ability to navigate an increasingly hostile regulatory environment. The involvement of ordinary Iranians in crypto markets, often out of necessity rather than ideology, underscores the humanitarian dimension of sanctions, raising ethical questions about the collateral impact of such measures on civilians. Ultimately, Iran’s experiment with cryptocurrencies is a high-stakes gamble, balancing economic innovation against geopolitical risks and domestic stability.