Current State of Crypto Adoption in Iraq
Source: Envato
In Iraq, cryptocurrencies are seen as risky and unpredictable, especially compared to familiar investments like real estate or stocks.
Before 2017, most people in Iraq were unaware of digital currencies. However, as more information spread, interest began to grow, particularly among younger, tech-minded individuals and intellectuals.
The turning point came after 2017, when surging prices attracted thousands of new investors. While some made impressive profits, others experienced losses and even fell for scams.
This rapid rise of crypto’s unregulated market worried Iraqi authorities, who decided to act. Instead of creating rules to guide crypto use, they focused on limiting it.
For example, the Central Bank of Iraq banned crypto in 2017, the Supreme Fatwa Board in Kurdistan denounced the OneCoin scheme in 2018, and the Kurdistan Region’s High Council of Fatwa banned all cryptocurrencies in 2020.
These restrictions, along with falling crypto prices after a peak in 2021, led many Iraqis to see cryptocurrency as one of the riskiest ways to invest.
Yet, as the Iraqi dinar fluctuates and banking issues continue, some people are turning to stablecoins—digital currencies tied to the U.S. dollar—as a safer way to store their money outside the banks.
Even with the ban, interest in cryptocurrency remains. Limited access prevents local exchanges from growing, but some Iraqis still manage to use foreign platforms, showing resilience and a steady curiosity in digital currencies. As the world learns more about crypto, Iraqis are finding ways to explore it, despite the challenges.
Crypto Law In Iraq
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Iraq currently lacks specific legislation or regulatory oversight for blockchain and cryptocurrencies. However, the Central Bank of Iraq (CBI) issued an official statement concerning the use of cryptocurrency, deeming it as illegal and banned in the country.
Here are the CBI’s key points concerning cryptocurrency:
- Banks, financial institutions, and other licensed entities cannot process or facilitate cryptocurrency transactions.
- Security concerns, such as fears of illicit finance, market instability, and consumer risk, were cited as the primary reasons for this prohibition
Factors Driving Crypto Adoption
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In Iraq, certain unique challenges have driven more people to use stablecoins, which are types of cryptocurrencies tied to stable assets like the US dollar. Here’s why this trend has been growing:
High Inflation
Iraq has been struggling with rising prices, which have made the Iraqi dinar lose value. As a result, people are looking for safer ways to protect their savings, and stablecoins offer a reliable option to keep their money’s value more consistent.
Credit Card Issues
The government’s fixed exchange rate for the dinar versus the dollar has created confusion. With different rates for cash versus online credit card purchases, Iraqis have found that using stablecoins at the official rate helps them avoid these currency rate differences and simplifies online shopping.
Strict Financial Rules
In an effort to strengthen the dinar, the government has placed limits on how money can be used, including restrictions on credit cards. These changes have made it harder for people to feel financially secure, so many have turned to stablecoins to gain more control over their money.
Low Trust in Banks
Over time, confidence in Iraqi banks has declined, especially after recent sanctions from the US that have affected dollar deposits. With less trust in banks, more people and businesses are choosing cryptocurrencies as a safer way to manage their finances.
Cryptocurrency Usage in Various Sectors
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In Iraq, cryptocurrency is mostly used as a way to store and protect value, conduct transactions, and overcome limitations in the traditional banking system.
The usage varies across sectors, driven by factors like high inflation, currency devaluation, and restrictions on cash flow, which have encouraged Iraqis to explore alternatives like stablecoins and other digital assets.
Individual Use for Savings and Wealth Protection
- Stablecoins
Many Iraqis use stablecoins, such as USDT (Tether), to safeguard their savings from the volatile dinar and high inflation. These stable digital currencies allow people to preserve their money's value by tying it to more stable foreign currencies, often the US dollar.
- Remittances
With many Iraqi expatriates working abroad, cryptocurrencies have become a popular choice for sending money back home. Digital wallets and crypto exchanges help bypass traditional remittance services, which are often costly and inefficient, especially given the restrictions on foreign exchange transactions.
Online Purchases and Cross-Border Transactions
- E-commerce
Cryptocurrencies, particularly stablecoins, are increasingly used for online purchases, as they enable Iraqis to access international goods and services without navigating the challenges of Iraq's restricted credit card system.
- Cross-border Payments
Iraqis engaged in international business often use cryptocurrencies to pay for imports or services, avoiding fluctuations in local currency and the need for complicated cross-border banking.
Investment and Speculation
- Trading
As cryptocurrency awareness grows, more Iraqis are participating in crypto trading, either as a speculative activity or as a method to hedge against the declining value of the dinar.
- Peer-to-Peer (P2P) Platforms
Platforms on Telegram, WhatsApp, and Facebook provide Iraqis with an informal way to trade cryptocurrencies with one another, often without the fees or regulatory oversight associated with banks or formal exchanges.
Financial Independence for Small Businesses
- Alternative Payment MethodsÂ
For small businesses and freelancers, cryptocurrencies offer a flexible payment option that bypasses Iraq’s cash-heavy economy and banking limitations. Cryptocurrencies provide faster, more accessible payment methods for both local and international clients, especially in regions where banks may not be easily accessible or trusted.
- Capital PreservationÂ
Small businesses use stablecoins to preserve capital value amidst currency devaluation, keeping their operating funds in a more stable asset and minimizing losses from inflation.
Benefits of Cryptocurrency Integration
Integrating cryptocurrency in Iraq could bring several economic and financial benefits, providing individuals, businesses, and even the government with new tools to address key challenges in the country. Here’s a look at how crypto could positively impact Iraq:
Source: Vecteezy
Protection Against Inflation and Currency Devaluation
With the Iraqi dinar facing high inflation and a tendency to devalue, cryptocurrencies—particularly stablecoins—offer a stable means of saving and preserving wealth.
Iraqis can protect their money by storing it in digital assets tied to stronger foreign currencies, like the US dollar, helping to avoid the risks of a depreciating local currency.
By using stablecoins, Iraqis can maintain their purchasing power, which is crucial in an economy where prices for goods and services fluctuate frequently.
Enhanced Financial Inclusion
Cryptocurrencies allow individuals to store and manage assets without needing a traditional bank account. In areas with limited banking infrastructure or where people mistrust banks, digital wallets offer a way for Iraqis to access financial services easily and independently.
The use of cryptocurrencies will also enable Iraqis to participate in the global economy by providing a secure, efficient method for making cross-border payments.
This could expand opportunities for freelancers, remote workers, and small businesses that operate internationally.
More Efficient and Affordable Remittances
Many Iraqis depend on remittances from relatives abroad, but traditional money transfers can be slow and costly. Cryptocurrencies can streamline the process, enabling quick, low-cost remittances without the fees that often accompany traditional methods.
Families receiving crypto payments can access funds more directly, even in regions where conventional banking services are sparse or unreliable.
New Economic Opportunities for Businesses
Cryptocurrencies offer businesses a convenient payment method, especially for international transactions. Small businesses and merchants in Iraq could accept crypto as payment, widening their customer base and enabling them to compete in a digital economy.
Additionally, companies can use stablecoins to hold operating funds in a more stable asset, reducing the impact of inflation on their reserves and supporting smoother business operations.
Transparent and Efficient Financial Transactions
Cryptocurrencies can promote greater transparency in financial transactions, particularly useful in a country where trust in financial institutions is limited.
Blockchain’s public ledger allows for the tracking of transactions, making it harder to manipulate or misuse funds.
If integrated thoughtfully, crypto could provide the government with a transparent method of managing and distributing public funds, potentially improving efficiency in areas like welfare and public services.
Increased Tech Awareness and Skill Development
Crypto and blockchain technology can drive interest in tech and digital skills in Iraq. This could lead to job creation in tech-related fields and provide youth with skills relevant to the global economy.
With proper support, it could also fuel the development of a tech-focused startup ecosystem in Iraq. Entrepreneurs could explore blockchain applications in sectors like finance, logistics, and education, opening doors for local innovation.
Potential for a Stronger Economic Position
Currently, Iraq has a poor economy and one of the weakest public finance system. However, if crypto is integrated, Iraq could potentially integrate more seamlessly with the global economy. This could attract foreign investment, expand trade opportunities, and create a more resilient economic environment.
Improved Financial Control and Autonomy
With cryptocurrencies, Iraqis can bypass some limitations of the traditional financial system, gaining more control over their financial interactions and minimizing dependency on foreign banking regulations.
Challenges to Crypto Integration
Source: Vecteezy
The challenges facing cryptocurrency adoption in Iraq are significant:
Government Opposition
In 2017, the Central Bank of Iraq issued a ban on cryptocurrency, citing risks such as financial crimes and lack of protection for citizens.
This stance was reinforced recently by the Kurdistan Regional Government's Ministry of Interior, warning businesses against cryptocurrency transactions. The ban has driven crypto activity underground, pushing users into unregulated spaces with limited transparency or accountability.
Fraud and Scams
Without regulatory oversight, Iraq has seen a rise in crypto scams and Ponzi schemes that prey on citizens. Foreign entities posing as legitimate businesses have drained millions of dollars from the Iraqi economy.
In 2021, a company known as Praetorian Group International (PGI) vanished with over $40 million in investor funds, further highlighting the dangers of an unregulated environment.
This has created a cycle where crypto is banned due to fraud, but fraudsters continue exploiting it precisely because of the lack of regulation.
Lack of Awareness and Education
Limited understanding of blockchain and cryptocurrency among Iraqi authorities and the public exacerbates the challenges.
Government agencies often view cryptocurrencies only as tools for money laundering and fraud, as highlighted in a Deloitte report recommending that Iraq's regulators adopt a proactive stance on cryptocurrency.
Public financial illiteracy adds to this, with many citizens making uninformed investment decisions, unaware of the potential or risks of cryptocurrency.
Current Initiatives and Pathways Forward
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Although cryptocurrency use in Iraq remains illegal, various initiatives are working to build a foundation for blockchain awareness and adoption.
Below are key developments and the necessary steps Iraq could consider for advancing blockchain technology:
Key Initiatives in Iraq
- Iraqi Blockchain Society
The Iraqi Blockchain Society plays an active role in introducing blockchain to the public. It organizes events, workshops, and hackathons to familiarize Iraqis with blockchain concepts and use cases, aiming to build foundational knowledge and foster a local community interested in digital innovation.
- Blockchain Projects in Iraq
Despite legal and infrastructural challenges, some blockchain projects have gained ground in Iraq. Two notable examples include ZainCash and Taqanu.
Potential Regulatory Path Forward
For Iraq to gain the full potential of blockchain technology, it needs a supportive legal and regulatory framework that addresses the challenges unique to the region. Such legislation could include:
- Defining Blockchain's Legal Status
Establishing a clear legal classification for blockchain and digital assets would create a stable environment, providing clarity for investors, developers, and users.
- Establishing Rights and Obligations
Enforcing well-defined rights and obligations for blockchain stakeholders, including users, providers, and regulators, would promote fair and secure engagement.
- Setting Standards for Security and Privacy
Adopting standards for blockchain security and privacy would ensure safer platforms, especially given the risks associated with cyberattacks and unauthorized access.
- Encouraging Innovation and Education in Blockchain
Offering incentives and support for blockchain innovation and educational programs could drive local talent development and encourage growth in the sector.
Conclusion
Cryptocurrency is illegal in Iraq due to the Central Bank’s 2017 ban, which prevents any domestic financial institution from engaging in crypto transactions.
While this prohibition limits access and innovation, Iraq may, in time, evaluate alternative regulatory paths that could allow for crypto’s benefits while addressing security and economic concerns.
