Russia and Iran will have to adopt Bitcoin – Bitcoin Magazine

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This is an opinion piece by Q Ghaemi, stock and bitcoin analyst and author of the Qweekly Update newsletter.

Earlier this month, reports surfaced that the Central Bank of Iran was working with the Russian Crypto and Blockchain Industry Association to create a stablecoin that will be backed by gold to settle the trade. This is not the first foray into the world of crypto for either country, nor will it be the last. But this venture will come to nothing, ultimately bringing the two countries closer to adopting Bitcoin.

Iran’s foray into cryptocurrencies favors Bitcoin

In August 2022, a headline came and went and most haven’t heard of it, and those who did hardly thought of it: “Iran Approves Use of Cryptocurrency for imports in order to blow up the sanctions”. Ignoring the fact that the source of this headline was a media outlet funded by Saudi Arabia with the likely aim of destabilizing and delegitimizing Iran, it is important to acknowledge that Iran successfully completed an August swap of an estimated worth of $10 million, which can be presumed to have been conducted in bitcoin.

Based on daily volume, there are approximately 20 possible cryptocurrencies that could have been used to complete this transaction, however, if we take these cryptocurrencies by daily volume and agree that none with a daily volume of less than 1 $1 billion could not have been used (anything over 1% of daily volume would cause the price to fluctuate too much: 1% of $1 billion equals $10 million), we are left with seven crypto- possible currencies: Ripple (XRP), Solana (SOL), USDC, Ethereum (ETH), Binance (BNB), Tether (USDT) and Bitcoin (BTC).

We can take down USDC, Solana and Ripple quickly because they are all run by US companies and due to sanctions laws (see: Tornado Cash) they would be forced to stop Iran from using their platform. -shape (it’s also safe to assume that the Iranian government has chosen to eschew US companies for the sake of simplicity). Tether can also be discarded given its link to the US dollar. I will also throw away Ethereum because the Iranians are too cheap to pay this gas fee. This leaves us with two options: BNB and Bitcoin. Personal biases aside, no one settles international trade with BNB without Binance CEO Changpeng Zhao (CZ) doing some sort of victory lap. Bitcoin wins.

Iran has also previously banned Bitcoin mining operations due to the strain on Tehran’s power grid. He has since returned all mining equipment and, as noted above, claimed that $10 million in international trade was made using cryptocurrency. Suffice to say that Iran has started to see the potential of Bitcoin.

Russian Foray into Cryptocurrencies Demonstrates Need for Unauthorized Exchange

Russia has also started dipping its toes into the broader cryptocurrency space. After the US government responded to the invasion of Ukraine with sanctions, Russia was forced to explore alternatives to completing international trade. President Vladimir Putin’s response was to give up more than $500 billion in reserves and force every buyer of Russian natural gas to pay in Russian rubles. The ruble reacted very positively to this news (see the chart below with a red arrow indicating the start of US sanctions and a green arrow indicating when the ruble became the sole means of payment for Russian natural gas).

Source

Russia then slowly began to reverse its 2020 stance on cryptocurrencies. Late last year, Russia announced that it would allow international settlement in cryptocurrencies without any restrictions, a huge reversal from its previous stance. These moves prove that Russia sees the potential of cryptocurrencies as a medium of exchange.

Sanctions strengthen the bond

Both countries have been the recipients of US and Western sanctions, but have found ways around them to stay in power. The lesson these two countries have learned is not to trust anyone, especially in the world of finance. Putin profusely advertised that by freezing Russia’s dollar holdings he “virtually defaulted”, signaling that even the mighty dollar may not be as powerful as the United States wants you to believe.

Iran is also no stranger to empty promises from the West: after negotiating and agreeing to a nuclear deal in 2015, President Donald Trump came along and tore up the old deal. Although this may be common practice in some (shady) business ventures, it is an insult in Persian culture. Every indication that a new nuclear deal will be signed by Iran was laughable: why would Iran assume that the next deal would be confirmed after this president leaves? Needless to say, the Iranian government has very little trust in foreign governments.

“The enemy of my enemy is my friend” plus “keep your friends close but your enemies closer” equates to Iran/Russia relations.

In 2023, it almost makes sense to Westerners for Russia and Iran to work together. Both countries are considered villains by many Western countries, and strict sanctions prevent them both from selling their resources to the world. Both have stocks of oil and gas that the world desperately needs. And yet, their history is far from harmonious.

Until the 1920s, Britain and Russia fought over control of Iran’s resources. The Qajar dynasty would bend the knee and give whatever the foreign powers asked for in return for riches and riches for their family. Everything changed after the 1921 coup that ended the Qajar dynasty and brought Reza Shah to power.

Reza Shah refused to make concessions to foreign powers and focused on Iran’s growth. The Soviet Union was born a year later, causing the USSR to focus on domestic growth as well. As Iran began to rise in importance to the West (mainly in the UK and US), Reza Shah and his son (the last Shah of Iran, Mohammad Reza Shah) would use fear of western communism to their advantage. If Iran didn’t get what it wanted from its western trading partners, it would go and make a little deal with the USSR to remind them who was in charge.

Despite the once contentious history between these two nations, it seems they have found common ground: the perception as an enemy of the West.

Why the New Stablecoin Will Fail

I have said loud and clear that the stablecoin experiment between Iran and Russia will fail and cause them to adopt Bitcoin. How will he fail? There is no trust: there never was and there never will be.

Trust can be eroded during network formation. While many Russian and Iranian leaders may believe that their country’s best engineers can design a product capable of circumventing any adversary attack, what would prevent the other country from giving itself backdoor access? What’s stopping someone from creating a way to double chips? Now, that’s just guesswork: I only present a handful of potential flaws in this system – how many more can you think of?

The biggest question concerns the gold reserves backing the stablecoin: where will the gold be stored and who will verify that the listed amount of gold is still there? Given the lack of trust, neither country can be expected to blindly accept that the other holds the amount of gold it claims to hold (see “The Bitcoin Standard” for more on this topic ), and sanctions prevent a reputable third party from getting involved (although China may enter the puzzle one way or another here).

As this very large and very important hurdle is cleared, another question will continue to arise: Why? Why do we have to do all this when there is a cryptocurrency with enough liquidity to meet their needs and which requires no trust in either party?

Iran and Russia have banned residents from using Bitcoin, but they have also reversed some of their positions over time. It is safe to say that both governments are still figuring out the power and scope of what cryptocurrencies have to offer. It should also be noted that, if this joint effort is successful, it will not be the first gold-backed cryptocurrency.

Conclusion

Both countries are still in the information-gathering stage, and if by some miracle a researcher comes across this article, let me explain it plainly and simply: History has proven that when given the ability to control money, officials manipulate money for their benefit.

There’s a reason the Roman Empire fell and we don’t use guilders or pounds as global currencies. Instead of introducing this temptation into the equation, adopting a trustless form of currency that cannot be manipulated or inflated is the only solution. Bitcoin is the inevitable money you are looking for. Whether you get there before your enemies is up to you.

This is a guest post by Q Ghaemi. The opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.

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