Could Russia Just Switch to Bitcoin? Ever since Western countries decided to exclude Russia from international payment transactions, this question has been raised.
In response to the war of aggression against Ukraine, the US and the European Union are attempting to more or less cut off Russia from international financial flows. There are currently two main weapons being used in this financial war : First, some Russian banks are to be excluded from the Swift international payment system. This means that they should no longer be able to send money to or receive money from banks abroad. Secondly, the foreign exchange reserves of the Russian central bank were frozen. It can no longer do anything with the dollars and euros that Russia has in reserve.
But there could be an open flank: cryptocurrencies. In Russia, as well as in Ukraine, digital currencies such as Bitcoin and Ether are relatively widespread. And in the past few days, more bitcoins have been bought for rubles than in months. This raises concerns that Russia, Russian companies, and individuals affected by the sanctions may attempt to use cryptocurrencies to circumvent the sanctions. For example, in which the country also sells commodities against Bitcoin, Ether or Tether. Or by oligarchs investing their money in Bitcoin.
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At least that's what the governments of the USA, the EU countries and Ukraine fear - and are trying to prevent. "We are taking measures, particularly in relation to cryptocurrencies or crypto-assets, which must not be used to circumvent the financial sanctions decided by the 27 EU countries," French Economy and Finance Minister Bruno le Maire said on Wednesday after talks with EU finance ministers.
The U.S. Treasury Department has asked major crypto exchanges to suspend sanctioned entities and individuals, Bloomberg reports. Exchanges such as Coinbase or Binance are platforms on which cryptocurrencies can be sent or exchanged for national currencies such as US dollars or euros. On Sunday, Ukrainian Deputy Prime Minister and Digital Minister Mykhailo Fedorov also called on such exchanges to block "the addresses of Russian users" . It's not just about Russian and Belarusian politicians, but also about "sabotaging normal users".
Crypto exchanges react cautiously
This last requirement in particular is met with rejection from the trading platforms. Binance, the world's largest exchange, told US broadcaster CNBC that it is "taking the necessary steps to ensure we act against those who have been sanctioned, while minimizing the impact on innocent users." Blocking all user accounts from Russia in general would not be an option.
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A spokesman for Coinbase, another major platform, made a similar statement. Accounts of people who are sanctioned would be blocked. But "at this time, we will not impose a blanket ban on all Coinbase transactions with Russian addresses." In fact, it is questionable whether a categorical blocking of all Russian accounts would be the right way.
The US government is currently examining what options there are to intervene in the crypto market, reports the Wall Street Journal. These are likely to include trying to shut down crypto transactions by sanctioned banks and cutting off Russian crypto trading platforms from the global market. At the end of last year, the US government had already imposed sanctions on the Russian crypto exchange SUEX and others because ransomware payments were said to have been processed through it. So there are already initial empirical values.
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Still, it is difficult for states to regulate cryptocurrencies. This is also because there is a fundamental conflict between the idea of cryptocurrencies and the idea of financial sanctions. In fact, the declared goal of many crypto enthusiasts is to overcome the state monetary system. A financial world without central banks that control the money supply and without banks that process transactions is the techno-libertarian dream.
This is also shown by the reaction of the CEO of the US trading platform Kraken Jesse Powell to the demand to block Russian accounts. He understood where the request came from, he wrote on Twitter , but he would not comply "as long as there is no legal obligation to do so". Currencies like Bitcoin are "the embodiment of libertarian values". His mission is to bring people into the world of cryptocurrencies, where "arbitrary lines on maps no longer matter" - and you don't have to worry about your assets being confiscated "in a broad discriminatory" action.
Trade (almost) without middlemen
From a purely technical point of view, Bitcoin and Ether come very close to the vision of crypto fans: A transaction in the blockchain, the technology on which crypto currencies are based, is not processed by a central institution. It is therefore also referred to as a decentralized system. In general, the idea is that a transfer is only carried out when all participants in the system have agreed to it. Then it stands forever in the blockchain and cannot be undone.
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In order to process a transfer in Bitcoin, you theoretically only need the Bitcoin address of the recipient. In practice, however, you have to enter it somewhere. In many cases, this is done via one of the major trading platforms such as Coinbase or Binance. In particular, buying or selling cryptocurrencies, i.e. exchanging them for real money, is difficult in practice without the platforms: You would first have to find someone who offers or wants to buy the right amount of cryptocurrency, and then agree on the price . Exactly such agreements happen almost automatically on a stock exchange - crypto exchanges are no exception.
However, although these platforms mediate transactions in a decentralized system, they are themselves very classic platforms, comparable to social networks, online shops or banks. They serve as a middleman so that buyers and sellers do not have to trust each other. And they can suspend user accounts, for example if someone violates the terms of use or if the law requires it.
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In fact, the platforms are keen to implement further sanctions against Russian accounts if they are imposed. Kraken CEO Powell even warns his Russian customers that such a mandate "could be imminent". So at least the part of the cryptocurrency market that takes place on these platforms can certainly be regulated. Transactions, as described, can also be processed without large platforms. This may give individuals in Russia the ability to order products abroad and pay for them with cryptocurrency (although the question is whether they will be delivered). But smuggling large payments, such as for whole shiploads of raw materials, past the sanctions regime should still be difficult.
Because at least the big cryptocurrencies like Bitcoin and Ether are not as anonymous as is often claimed. In fact, every transaction is publicly visible, including the amount as well as the sender and recipient address. It is not immediately apparent to which persons these addresses belong. Criminals are quite capable of obfuscating payments and laundering Bitcoin . Conversely, investigation successes show that this can also be exposed . It is questionable whether companies that are not allowed to trade with Russia will take this risk.
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This raises the question of what options Russia would have at all to circumvent sanctions with cryptocurrencies. Currencies could possibly play a role in trade with nations that are not participating in the sanctions or are even affected by them themselves, such as Iran.
Or just dig yourself?
Iran could also be a role model for a model that experts believe is also possible for Russia. Iran uses the oil it can no longer sell to generate electricity, which it then uses to create bitcoin. According to analytics firm Elliptic , the country is producing hundreds of millions of dollars in cryptocurrencies “that can be used to buy imports and evade sanctions.”
Russia could do something similar with its gas. In fact, as recently as January, Russian President Vladimir Putin said Russia had an advantage in "so-called mining. "The statement also came as a surprise because there had previously been efforts in Russia to regulate or even ban cryptocurrencies. Russia is already the country where the world's third most bitcoins are mined.
However, the profit from mining would hardly reduce the effect of the sanctions. Because even if cryptocurrencies have grown strongly in recent years, the sheer volume is likely to be a problem. There is no way Russia could fully mitigate the impact of the restrictions with cryptocurrencies alone, an Elliptic analyst told the UK Guardian. The global crypto market is roughly the size of the Russian banking sector.
The past few days have shown that cryptocurrencies can also be helpful: the Ukrainian government asked people on Twitter on Saturday to donate cryptocurrencies. More than 30 million dollars have already been raised.
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