Blockchain Experts Warn: Central Bank Alone Cannot Regulate Cryptocurrencies

Despite years of cautious governmental engagement with the blockchain industry, recent discussions about the Central Bank's regulatory focus have raised new concerns among stakeholders. Their main argument is that cryptocurrencies lack a monetary nature that warrants the Central Bank as the primary regulator. Additionally, the rapid evolution of blockchain does not align with traditional banking frameworks. Industry players believe that regulation should involve institutional coordination rather than institutional concentration, as this technology is inherently unregulatable. Only the operation of Iranian interfaces and their connection to the national economy can be legislated. Experts argue that any sudden and strict regulation could push transparent players out of the market, paving the way for underground activities, contrary to the regulator's goals.

Need for Coordinated Regulation

Mahkameh Sharifzad, chairwoman of the Blockchain Association, discussed cryptocurrency regulation with Digiato: "The concern today is that we want to regulate something that is inherently unregulatable. Blockchain is like the internet; you cannot license the Bitcoin protocol in one country. We can only legislate the Iranian interfaces of this technology with the national economy."

She emphasized that the focus should not be on identifying a regulatory body but on defining an appropriate regulatory model and nature for this field. She explained: "The cryptocurrency market is inherently cross-sectoral, encompassing financial, technological, legal, and economic dimensions simultaneously. Therefore, if we limit regulation solely to the Central Bank or the Securities Organization, this approach will become part of the main problem instead of offering a solution."

Sharifzad continued by stating that an appropriate model would involve forming a coordinating regulator for digital assets: "There needs to be an institution with specific powers under digital economy macro policies (such as the Supreme Council of Cyberspace/Digital Economy). However, this path requires the official role of the Central Bank for monetary and payment issues, the Ministry of Economy and the Securities Organization for investment tools, the Ministry of Communications for infrastructure and data, and finally, private sector SROs like the Blockchain Association for standard development and professional market monitoring. This combined approach will be key to solving the cryptocurrency regulation puzzle."

Addressing Bureaucratic Challenges

Sharifzad highlighted platform preferences regarding regulators: "For businesses, predictability and having a responsive authority are paramount. Experience has shown that uncoordinated entry by multiple entities leads to contradictions; a business receives a license from one side but faces restrictions on the same activity from another, with no entity accepting responsibility for the final decision. Therefore, platforms clearly prefer a coordinating regulator with inter-institutional mechanisms over multiple independent entities."

She pointed out two significant advantages of this model: "Firstly, compliance costs are reduced, allowing businesses to focus on innovation instead of waiting in bureaucratic queues. Secondly, governance gains a unified picture of risks and data rather than each entity seeing only a piece of the puzzle and making decisions inconsistent at the national level."

She emphasized that the gap between institutional synergy and isolated action is palpable, with businesses and the digital economy bearing the cost.

Moving Towards Intelligent Risk Management

In another part of her speech, Sharifzad discussed the legal framework expected by platforms: "Platform expectations are not complex. They want three clear things: transparent and predictable licensing, clear technical and operational standards that are not prescriptive, and controlled freedom for innovation."

Sharifzad stressed that such an entity should know exactly what type of license is needed for cryptocurrency exchanges, custody services, cryptocurrency-based payments, or analytical services or technology: "The licensing process should have a set time frame, defined stages, and measurable criteria; it should not result in years of uncertainty."

She further emphasized the need for standards in security, storage, risk management, fee transparency, customer asset segregation from platform assets, and internal control: "These requirements exist but their implementation should be left to businesses and specialized SROs rather than being dictated in directives."

The chairwoman also pointed to the dynamic nature of digital businesses: "Technology evolves every six months; if businesses have to go through lengthy agreement cycles, committees, and signatures for every new capability, they will effectively exit global competition."

She suggested regulatory sandboxes and principle-based rules as solutions: "Governance should clarify red lines and oversight objectives while leaving innovation to achieve them."

Sharifzad described desirable oversight: "No professionally operating platform has issues with oversight; problems arise when oversight turns into interference in business management instead of entrepreneurial activity. Generally, oversight should be risk-based and multi-layered."

She explained multi-layered oversight as having three layers: strict entry requirements, continuous reporting instead of moment-to-moment control, and self-regulatory monitoring.

Implications of Traditional Oversight

The chairwoman believes that if traditional banking oversight models relying on numerous handwritten reports, fragmented licenses, and reactive responses are applied verbatim to the cryptocurrency market, three outcomes will emerge: First, users will move from transparent domestic platforms to underground markets and social networks; second, oversight costs for governance will increase unreasonably; most importantly, instead of reducing systemic risk, risk will shift from visible to hidden and untraceable states.

Sharifzad further elaborated on four key points for moving towards intelligent risk management rather than merely controlling payment technology: "In my view, the correct path for cryptocurrency legislation is based on several clear axes. First, we must focus on regulating contact points rather than blockchain technology itself; meaning focus should be on exchanges, custody services, gateways, banks and payment facilitators with requirements such as fee transparency, asset segregation, user accountability, and compensation mechanisms."

She also mentioned principle-based rules focused on outcomes rather than technical details: "The law should state that users should not be exposed to high leverage risk without notice but leave implementation to platforms and SROs without dictating UI design or pop-up text."

The chairwoman referred to sandbox necessity and safe havens for businesses: "Innovative projects should have opportunities to test within specified frameworks and timeframes so that if successful they can transition into official services without relying on relationships or exceptions."

Sharifzad further emphasized structured use of SRO capacities: "Associations can write standards before crises arise and identify violations early provided their roles are formalized and outputs recognized in governance decisions rather than turning to them only during crises."

In conclusion she noted that if legislation shifts from 'fear management of technology' to 'intelligent risk management', user rights will be better protected while private sectors can compete globally without capital flight within their own country otherwise we will end up controlling shadows while globally each day moves further ahead with professional economic outlooks.

Institutional Coordination Over Focus

The lack of a unified regulatory document is the main obstacle to the growth of Iran's cryptocurrency industry. Each institution has a different understanding of the market's nature. Industry activists stress that without a coordinated, data-driven framework, development and investment attraction will not be possible.

Amir Behzadi-Nia, Business Manager of Aban Tether, explained the need for a cryptocurrency market regulator in an interview with Digiato:

"None of the current institutions, neither the Central Bank nor the Securities and Exchange Organization, fully understand crypto-assets. The cryptocurrency market is neither entirely banking-related to fall under the Central Bank's jurisdiction nor entirely similar to the capital market for the Securities and Exchange Organization. Therefore, a single regulator does not work."

He emphasized that the correct regulatory model should be multi-institutional and coordinated. "The solution is to form an upstream working group comprised of the Central Bank, Securities and Exchange Organization, Cyber Police, Ministry of Economy, private sector representatives, and technical experts. This group should draft an upper-level regulatory document for crypto-asset exchange, clearly specifying which institution is responsible for which part. Until basic definitions in this field are clarified, handing over regulation to a single institution will only create more contradictions."

Behzadi-Nia responded to whether cryptocurrency platforms prefer a single regulator or multiple institutions: "Platforms seek a unified voice, not a single institution. It does not matter how many institutions are involved in regulation. What matters is having a single, reliable reference document. This eliminates arbitrary interpretations and unconventional directives, making everything transparent."

He stressed that the current concern is about multi-voiced decisions and interference. "Sometimes the Central Bank says to apply volatility limits, another time the Tax Organization has a different interpretation, and another manager might say to remove Tether. Such inconsistencies result in uncertainty and halt innovation. Overall, we prefer institutional coordination over institutional focus. The crypto-asset market is inherently multifaceted, and a single-dimensional regulator cannot have an accurate and complete picture of this market's multidimensional nature."

Data-Driven Supervision Preferred

The Business Manager of Aban Tether discussed expectations from the legal framework: "Our expectations are threefold. First, transparent and executable licensing, not requirements that only wealthy or privileged companies can meet. Setting initial capital from 40 to 400 billion tomans is neither logical nor aligned with global benchmarks."

He further highlighted the necessity for measurable technical standards: "KYC, anti-money laundering laws, cybersecurity, and user asset segregation are all measurable and assessable. However, setting volatility limits for Bitcoin, keeping Tether's price fixed, or defining trading hours is neither technically nor logically feasible."

Behzadi-Nia identified the third expectation as creating a gradual path and experimental space. He explained: "Before imposing heavy requirements, there should be a sandbox. All countries with successful regulations have followed this path and tested regulations with market participants before final issuance. Platforms are not seeking unregulated freedom but rather regulations that are logical, market-aligned, and executable."

He also explained the desirable level of oversight on cryptocurrency platforms:

"Supervision should be intelligent and targeted, not heavy and non-technical. We consider oversight in areas like risk control, money laundering prevention, user protection, and transparency absolutely necessary. However, supervision that overlooks the market's nature not only does not help but also exacerbates problems. The correct model is continuous technical and data-driven oversight, not discretionary and directive supervision like traditional banking."

Effective Regulation Through Engagement

The Business Manager of Aban Tether continued discussing how regulations can protect user rights without hindering innovation: "Legislation obstructs innovation when it lags behind technical realities and global models. However, if transparency, predictability, and participation are established, both risk can be controlled and the industry can grow."

He deemed three fundamental principles essential for achieving this balance: "Concepts must be defined before drafting regulations; until concepts like cryptocurrency, crypto-assets, security tokens, and utility tokens are clarified, any regulation will lead to institutional interference and confusion."

Behzadi-Nia also referred to gradual and phased implementation: "Sudden implementation of severe restrictions results in transparent actors leaving and an underground market growing, which is exactly contrary to the regulator's goal."

He identified consultation with the industry as the third principle: "Successful regulators globally have examined all aspects with market participants before finalizing regulations and tested them in real environments. Finally, they have set regulations with participant engagement."