Many countries have announced the development of their cryptos. It could be either backed by gold, oil, or a strategic extension of their fiat system. Also, some information has come up that certain governments are considering to use cryptocurrencies and bitcoin to bypass US sanctions.
That trend of using digital assets for local and international trade is growing considerably. Countries with high inflation or economic crises have recently experienced a spike in the use of Bitcoin as a store of value. At the global level, the countries that are facing US sanctions have the biggest incentive to indulge in the use of these financial instruments.
Iran recently stated that they will issue their gold-backed cryptocurrency. It is thought to be a strategy for Iran to avoid US sanctions and can trade with other nations away from the US dollar system constraints. However, there are better strategies for countries who require to bypass sanctions than creating their centrally controlled crypto.
No need to develop gold or fiat-backed cryptocurrency, use bitcoin
In many cases, no country wants to do business with any other country that is on a US sanctions list. The governments with credibility issues like Venezuela and those with rapidly devaluing currency face major challenges when trying to participate in any form of international trade.
Iran was not the first government to decide to announce the launch of state-owned crypto. The UK Royal Mint also announced gold-backed crypto while Venezuela launched the Petro token in 2018. Turkey recently also announced its fiat-based Lira.
The primary target of Iran’s crypto is to develop an asset that can be trusted for trade with any other country around the world. The gold backing is meant to act as an enabler of the trust. However, Iran must now convince everyone that it has all the physical gold necessary to support that token. In the same case, Venezuela must also convince the world that their Petro will be fully backed by its oil production.
Additionally, it will take time before third parties accept these forms of financial instruments issued by these governments. If they are not widely recognized and accepted for trade, the receiver is stuck with the assets that would only be redeemable with the issuer. Therefore, the receiver must have a great deal of trust on the token issuer.
Bitcoin has attained a great deal of credibility even finding support from some governments. Recently, Jerome Powell, the chairman of the US Federal Reserve, compared bitcoin to gold calling it a ‘speculative store of value.’ Bitcoin has proven that it is decentralized and has shown that its demand is high in spite of its high volatility.
Governments’ stand on Bitcoin
It is highly likely that countries can easily accept bitcoin for trade instead of Iran’s gold-back currency or Venezuela’s Petro token. After it is received by any trading partner, its reliability depends only on the protocol’s code. Nonetheless, no government has announced that they will accept or pay with bitcoin apart from some speculation of North Korea and Venezuela using BTC to bypass US sanctions
But, oil-rich countries may have a clever way to bypass all forms of sanctions and it may not involve trading oil in any way. It may not need to even go around the sanctions or find any form of loopholes. Countries may stop exporting oil and use it to mine bitcoin locally. The sanctions may not matter at all now.
Bitcoin may act as tokenized oil
In the most remote oil and gas fields, the excess gas is burned in gas flares. That does not provide any form of energetic or economic benefit. Thus, producers can monetize this stranded energy by mining bitcoin. That will offer many commercial solutions that up to now do not exist.
It features a modular data center focused majorly for bitcoin mining. The center can be powered using the gas that would normally get burned. Iran can bypass US sanctions by selling oil for bitcoin and bitcoinizing their oil production by burning excess gas to mine bitcoin. They can also decide to stop exporting.
If sanctions stop an oil producer from selling their oil in the market or if OPEC manipulates the oil price downwards.any oil producer can stop selling their oil and turn it into bitcoin. This will majorly introduce a repricing of oil denominated in bitcoin. Therefore, oil producers will compare the price of selling their oil in the market to the amount of bitcoin they will produce by burning it.
The oil export income will directly compete with the bitcoin earned by burning the oil for mining. Hence, the oil producer will only sell the oil if there is a premium to be gained by selling the oil instead of bitcoinizing it.
Provided that it is less profitable, they will withdraw their production form the market. That will, in turn, force an adjustment in the price of oil subject to the cost of mining bitcoin.
Here comes Petrobitcoin
Notably, it is not only the price of oil that may soon become tightly tied to and denominated in bitcoin. All other forms of energy sources could also be readily converted into bitcoin via hashing. That strategy will allow the bitcoinization of the remote or stranded energy. The energy market will soon become much more efficient and manipulation will eventually become impossible.
John is a content crafter and has experience in writing Forex and Crypto news for FXTimes for over a year. He is also an experienced creative and technical writer, and is usually one of the first ones to publish, discover or cover a scoop. e-mail: [email protected]