Middle East Crypto Adoption Will Come From Unstable Nations | Nimrod Lehavi

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Although several countries in the Middle East continue to restrict cryptocurrency trading and mining, digital transformation in the region has taken place at a rapid pace.

From the list of Dubai’s first Bitcoin fund to the Bank of Israel’s digital shekel trial, the enthusiasm of authorities and citizens is spreading, even as some governments remain openly hostile to bitcoin and others digital assets.

Nimrod Lehavi is the founder of Simplex and a board member of the Israeli Bitcoin Association.

CoinDesk’s Crypto State: Middle East virtual event will take place on August 11.

Although the majority of blockchain startups choose to locate in crypto-friendly territories such as the United Arab Emirates (UAE), the next wave of crypto adoption will likely come from citizens of unstable autocracies, as well as those from countries suffering from crushing inflation Iran and Lebanon to name just two.

Bitcoin Plan

A model for wider adoption in these countries can be seen in Turkey, where around one in five citizens are believed to own or have owned a cryptocurrency. Deputy Treasury and Finance Minister Sakir Ercan Gul will unveil a new legal framework for digital assets in October, with the aim of protecting retail investors and fighting money laundering.

The Turkish government’s stance on crypto has not always been favorable: in May, a law went into effect banning the use of digital assets for payment. Despite these strong interventions, the use of crypto in the country has increased 11-fold in the past year as a result of the decline in the value of the Turkish lira against the dollar.

Currently, the country has the fastest inflation in all of Europe and the 13th highest inflation rate on the planet. No wonder the Turks are escaping into stablecoins and deflationary assets like bitcoin, which allow them to retain their purchasing power and trade in the international market.

Iran’s economic outlook is similarly bleak, with inflation exceeding 40%. As the cost of everyday items (rice, meat, oil) skyrocket and push citizens into desperate poverty, US sanctions have compounded the issue by hitting government coffers hard.

In this cutthroat environment, a rampant crypto mining industry has emerged unfathomably due to low electricity prices and government support. Two years ago, Iran recognized bitcoin mining and established a licensing system that required miners to pay a higher tariff for the consumption of electricity. Another caveat was that miners must sell their mined bitcoins to the central bank. Surprisingly, mining in the country now accounts for around 5% of all bitcoin mining globally.

Following several power cuts earlier this year, President Hassan Rouhani ordered all such operations to cease until September 22.

The crackdown in China, meanwhile, has forced major miners to seek alternatives with Iran likely to top the list, notwithstanding the current ban. While mining is a highly specialized business, Iranians on the ground increasingly view cryptocurrency as both a protection against the devaluation of the rial and a way to overcome crippling international embargoes.

Oppressive rules

Although many crypto services remain off-limits to ordinary Iranians due to geo-blocking, the use of VPNs offers a gateway to a host of financial tools that are outside the purview of governments, especially those related to loans and borrowing. In addition to allowing citizens to escape crushing inflation and crippling sanctions, cryptocurrency allows them to send and receive money faster and cheaper than ever.

This is particularly relevant in Lebanon because of the diaspora, up to 15 million Lebanese have fled the war-torn nation, leaving an economic crisis in their wake. A recent article in Arabian Business explained how Lebanese citizens are starting to embrace cryptocurrency, with peer-to-peer (P2P) commerce busy on encrypted messaging platforms like Telegram and WhatsApp. This is the logical result when the local currency is depressed and the acquisition of greenbacks is prohibitive.

As we saw during the adoption of crypto in Latin America, stifling interest in banking alternatives is an utterly futile mission, even in countries ruled by autocratic rulers. While banks invariably bend to the will of strongmen, blocking withdrawals, freezing funds and closing accounts, decentralized cryptocurrencies cannot be appropriated by any oppressive state.

Although sanctions and know-your-customer rules make the process of buying crypto more difficult for people in the Middle East, they are increasingly finding a way to do it. Expect the UAE to continue to lead the way from a government and regulatory perspective; but away from the trading rooms and flashy skyscrapers, the next wave of users will be ordinary people.

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