The nanoparticles can't be converted back to iron in this process, but they can still be turned back into iron by other processes. No system is truly closed loop, but this is more closed loop than any other energy-to-fuel system.

You need to extract the feedstocks for any energy-to-fuel system. Iron is cheap and simple to extract, compared to say carbon from the atmosphere.

The nanoparticles do not get released to the environment. Emissions from burning carbon based fuels also include pollutants that are hazardous to human health.