Dollar-Less Iranians Discover Virtual Currency

[Eugen Leitl]

http://www.businessweek.com/articles/2012-11-29/dollar-less-iranians-discover-virtual-currency

Dollar-Less Iranians Discover Virtual Currency

By Max Raskin on November 29, 2012

Under sanctions imposed by the U.S. and its allies, dollars are hard to come
by in Iran. The rial fell from 20,160 against the greenback on the street
market in August to 36,500 rials to the dollar in October. Itbs settled, for
now, around 27,000. The central bankbs fixed official rate is 12,260. Yet
therebs one currency in Iran that has kept its value and can be used to
purchase goods from abroad: bitcoins, the online-only currency.

Created in 2009 by a mysterious programmer named Satoshi Nakamoto, bitcoins
behave a lot like any currency. Their value is determined by demand, and they
can be used to buy stuff. Bitcoin transactions are encrypted and handled by a
decentralized global network of tens of thousands of personal computers.
Merchants around the world accept the currency, from a bakery in San
Francisco to a dentist in Finland. Individuals who own bitcoins and wish to
exchange them for physical currencies like euros or dollars can use exchange
sites such as localbitcoins.com, a Finland-based site founded by Jeremias
Kangas. bI believe that bitcoin is, or will be in the future, a very
effective tool for individuals who want to avoid sanctions, currency
restrictions, and high inflation in countries such as Iran,b Kangas wrote in
an e-mail.

The advantage for Iranians is that bitcoins can be swapped for dollars that
can then be kept outside the country. Another plus: Regulators canbt easily
track the transactions, since bitcoins arenbt issued from a central server.
Bitcoin users can conduct business on virtual private networks, which hide
customersb identities.

At online store coinDL.com, shoppers can use bitcoins to buy Beyond Matter,
the latest album from Iranian artist Mohammad Rafigh. Anyone in the U.S.
downloading songs, which fetch .039 bitcoins or 45B" each, risks violating
U.S. sanctions. That doesnbt bother Rafigh, whobs studying computer
engineering as well as playing music. bBitcoin is so interesting for me,b
Rafigh wrote in an e-mail. bI wish the culture of using digital money spreads
all over the world, because it does not have any dependency on anything like
politics.b Rafigh has translated some bitcoin software into Farsi for his
friends. bI love Iran, and if bitcoin is good for me, it can be good for more
Iranians like me.b

Iranian-American bitcoin consultant Farzhad Hashemi recently traveled to
Tehran and talked up bitcoin to his friends. bThey are instantly fascinated
by it,b he says. bItbs a flash for them when they realize how it can solve
their problems.b Iranians working or living abroad can send bitcoins to their
families, who can use one of the online currency matchmaking services to find
someone willing to exchange bitcoins for euros, rials, or dollars. Bitcoins
are useful to Iranians wishing to move their money abroad, either to children
studying in Europe or America or simply to stash cash in a safe place.

As the value of the rial plunges, many Iranians are trying to acquire foreign
currencies. bWe have no idea what will happen,b says Amir-Hossein Madani, who
says hebs traded tens of millions of street market dollars in Tehran over the
past two years. bThese days prices change every 10 minutes.b

The uncertainty has led some Iranian software developers to ask clients to
pay them in bitcoins. bAnyone with a computer is able to own, send, and
receive them. You can be at an Internet cafe in Iran and managing a bitcoin
account,b says Jon Matonis, a founding board member of the Bitcoin
Foundation, a Seattle nonprofit that promotes the currency. The exchange rate
in Iran is 332,910 rials per bitcoin. It isnbt known how many Iranians use
bitcoins to skirt sanctions. According to localbitcoinsb Kangas, 32 people in
Iran have contacted each other through his site.

An internal FBI report in April expressed concern over the online currency.
The report was leaked to Wired and Betabeat. bSince Bitcoin does not have a
centralized authority, law enforcement faces difficulties detecting
suspicious activity, identifying users, and obtaining transaction
recordsbproblems that might attract malicious actors to Bitcoin,b says the
report. For now, Iranians are using bitcoins to maintain a fragile connection
to the outside world.

The bottom line: Iranians are resorting to virtual currency to move money
into and out of the country in a way that Western authorities find hard to
detect.

With Ladane Nasseri, Yeganeh Salehi, and Peter S. Green

Raskin is a reporter for Bloomberg News.