Like Venezuela, Iranian officials came out earlier in the year to proclaim the launch of their very own “cryptocurrency” for the country. In the case of Venezuela, the national cryptocurrency is backed by the country’s national resources (oil and gold reserves), in the case of Iran’s cryptocurrency, it’s to be backed by the already unstable rial, Iran’s regular fiat currency. While the introduction of Iran’s cryptocurrency is clearly a similar play to Venezuela’s decision in an effort to circumvent economic sanctions, there are other oddities about the new “cryptocurrency” that’s supposedly coming to the country (still no sign of the currency yet). For those who haven’t looked into the nature of the currency much, it’s pretty clear that the digital currency isn’t really much of a “cryptocurrency” at all, regardless of the naming officials may wish to use. Let’s take a look.
Pre-mined Coins With No Cap
The first red flag that sticks out to crypto enthusiasts and users across the globe is that the cryptocurrency is going to be premined. There will be no option for those looking to mine the coin or stake coins for verification. Instead, the official cryptocurrency from Iran will be entirely premined. There isn’t going to be a way for normal citizens to effectively earn or “mine” coins at all. You’ll just have to get what you can get as an Iranian. But wait, there’s more.
As if that weren’t enough of a reason to not be a fan of the (supposedly) incoming cryptocurrency, Iran also announced that there would be no cap on the amount of coins. Unlike most cryptocurrencies with a predetermined amount of coins that will ever exist (think bitcoin and the 21,000,000 cap), the Iranian cryptocurrency supply is slated to be completely controlled by the state and completely unlimited. There’s no way to stop inflation. Instead, Iranian officials will be able to produce as many coins as they desire whenever they wish.
In theory, this wouldn’t necessarily be a massive issue if done for a cryptocurrency like Tether (USDT), assuming questions of a properly backed stablecoin were addressed and nobody was concerned with the underlying company magically minting coins without the funds to back them up. However, even if that were the case, that would be relying on an incredibly fragile fiat currency already in circulation, the rial. Unlike the US dollar or the European euro, the rial is not the type of currency that’s going to instill faith in a cryptocurrency as the underlying asset. Instead, what we end up with is a troubling cryptocurrency to begin with, on unstable ground given the nature of its governance, and an underlying asset that equally troubling for investors.
Much like the rial, the future Iranian cryptocurrency is likely to face an unfortunate future. With officials being able to magically produce more coins whenever they desire (or need), the chances of the cryptocurrency actually being worth anything in the global markets seems unlikely.
Lack of Transparency
In the ever-growing list of concerns with the new cryptocurrency, there’s yet another fundamental issue at play here: transparency (or lack thereof). Unlike most cryptocurrencies, the Iranian cryptocurrency is also designed to be closed off to the public when it comes to transactions. Of course, transactions will be verified and recorded on a blockchain, but recent announcements from Iranian state media indicate that all transactions are to be recorded on a private blockchain. So much for a trustless, decentralized network.
Rather than embracing the essential core tenets of cryptocurrencies and blockchain technology more broadly, the Iranian government has instead opted for secrecy and control of the new so-called “cryptocurrency.” As if there weren’t already enough reasons to avoid cryptocurrency offerings from countries like Venezuela and Iran, the latest revelations about the project show that surely this isn’t going to end well. With inflation potential completely unlimited, there’s no way in the world for the Iranian cryptocurrency to remain stable or for investors to make any sort of educated predictions about the future of the currency.
For the risk takers out there looking to simply make a quick buck (of which there are many), this is probably looking like a hot opportunity. Sure, there may very well be a quick pop in price of the cryptocurrency when first launched, but then you have to ask whether you’ll even to trade the cryptocurrency. Of course, there’s the possibility of trading over the counter (OTC) or looking for a decentralized exchange that allows you trade such assets, but then investors (really traders, since this certainly isn’t likely to be a long term hold) will need to ensure that they avoid legal trouble depending on their country. If you’re in the US, then this, like Venezuela, is definitely a big no-no from Uncle Sam.
However, even for those who are legally allowed/able to participate in the release of this, is this something you’d want to do? Is it worth putting money into? Basically nothing coming from Iranian officials leads one to think of this new coin as a cryptocurrency at all. In fact, the details released for the so-called “cryptocurrency” sounds much more like a state-issued digital cash system with some buzzwords added to it. Buyer beware.