- Just weeks before the Russian invasion of Ukraine, Moscow published a legal notice that started the country on a process of legalizing cryptocurrencies, allowing authorities to oversee cryptocurrency transactions to ensure consumer protection.
- Cryptocurrencies and decentralized exchanges could become the most effective way to circumvent sanctions, anonymous smart contracts that could be executed to ensure censor-proof payment for transactions.
Are you a Russian oligarch looking to pay for your mega yacht but find that your accounts have been frozen by Western sanctions?
Fret not, because cryptocurrencies may yet provide you with an avenue to ensure that you and your cronies have plenty of opportunities to revel in your oligarchical luxury well before your butler has had an opportunity to top up your champagne flute.
While U.S. President Joe Biden has authorized “strong sanctions” on Russian entities and individuals, to limit its ability to do business in dollars and other major international currencies, these measures may be toothless in a country which has sought to legalize cryptocurrencies and where digital assets are already widely owned.
Just weeks before the Russian invasion of Ukraine, Moscow published a legal notice that started the country on a process of legalizing cryptocurrencies, allowing authorities to oversee cryptocurrency transactions to ensure consumer protection.
In the past, countries would circumvent sanctions for instance through the offshore transfer of commodities like oil or fuel, as was the practice by Venezuela and North Korea, which used ship-to-ship transfers.
But cryptocurrencies and decentralized exchanges could become the most effective way to circumvent sanctions, anonymous smart contracts that could be executed to ensure censor-proof payment for transactions.
Sanctions imposed on Russian companies and individuals, as well as members of their families would essentially close them off to the fiat-based currency system that revolves around the dollar.
Russian oligarchs who secure Putin’s iron rule, have already been targeted directly, and cryptocurrencies could be used to circumvent sanctions by relying on anonymous transactions.
Given the increasing acceptance of cryptocurrencies globally, as a means for payment of goods and services as well as for investment, those hit by Western sanctions have more choice than ever before to circumvent them.
Unlike fiat currencies which need to be moved through third-party financial institutions, that have the ability to track, freeze, or block them, cryptocurrencies can be sent from one person directly to another, regardless of sanctions.
But would-be sanctions evaders would still need to contend with trying to off-ramp cryptocurrencies into the fiat currency system and the recent crackdown by the Canadian government on cryptocurrency accounts held by truckers who were receiving funds to support their blockades of border crossings shows that it’s not entirely full proof either.
Cryptocurrencies aren’t exactly “untraceable” either – as evidenced by the recent arrest of two individuals linked to the 2016 Bitfinex hack – the U.S. government was able to track the activity of certain wallets and freeze accounts as soon as they were converted into fiat currencies.
A recent Russian government paper suggests that Russians already own around US$22.9 billion worth of cryptocurrencies, but the actual amount is likely to be a lot more as over 12% of Russia’s population are said to hold cryptocurrencies, according to data from payment gateway TripleA.
