After its invasion of Ukraine, Russia has been hit with a number of economic sanctions aimed at cutting the country off from the global financial system.
Key Russian figures and financial institutions have been placed on a U.S. sanctions list that effectively prohibits American firms from doing business with them. Meanwhile, the United States, European allies, and Canada have removed key Russian banks from an interbank messaging system called SWIFT, which hampers their access to global financial markets.
The two countries agreed to the new evacuation corridor and cease-fire for the northeastern city of Sumy after days of unsuccessful efforts to evacuate civilians from hard-hit areas amid continued Russian attacks and skepticism about Moscow'sintentions.
As his country entered its 13th day of the war(on 8th march 2022), Ukrainian President Volodymyr Zelenskyy sounded a defiant note in a speech from his office in the capital, Kyiv, saying that he was staying put and “not retreating."
With the advent of getting into the preparations on Russia and its neighbors, Moscow, facing fierce resistance and crippling sanctions, threatened to stop the flow of gas through pipelines from Russia to Europe.
Ukrainian officials pushed for the latest evacuation effort to succeed after several failed attempts to allow residents to flee Russian bombardment in other cities.
The sanctions have caused the Russian ruble to plunge.
This has led to a debate about whether cryptocurrencies, especially bitcoin, could be a way for those on sanctions lists to evade the restrictions.
This is because bitcoin and other digital currencies are decentralized, meaning they’re not issued or controlled by a central entity like a central bank. When crypto is sent to other users, it does not go through the traditional route of financial route lines.
First, blockchain, the technology that underpins bitcoin, is a public ledger of activity. It’s, therefore, possible to track the movements of funds from one account to another quite easily. This doesn’t make it a good tool for avoiding sanctions.
“The biggest misconception about crypto remains that it is untraceable and is primarily used for nefarious purposes, which couldn't be further from the truth, therefore anything unethical or illegal could be traced down if needed” Vijay Ayyar, vice president of corporate development and international at crypto exchange Luno quoted, Meanwhile, there isn’t enough liquidity for Russian oligarchs and companies to move their money around.
“Liquidity in crypto is still a fraction of the global currency market, and hence moving large amounts of money using crypto is difficult,” Ayyar said.
Cryptocurrency exchanges will also be on high alert.
“Exchanges that operate with strong processes and codes of conduct will no doubt be doubly watchful at this moment for funds that have nefarious origins,” Charles Hayter, CEO of data firm CryptoCompare.
Another prominent name in crypto Brian Armstrong, CEO of cryptocurrency exchange and wallet Coinbase, backed up many of these points in a thread. He said that every U.S. business has to follow the law.
“It doesn’t matter if your company handles dollars, crypto, gold, real estate, or even non-financial assets. Sanctions laws apply to all US people and businesses,” Armstrong said.
“So it would be a mistake to think crypto businesses like Coinbase won’t follow the law. Of course, we will. This is why we screen people who sign up for our services against global watchlists and block transactions from IP addresses that might belong to sanctioned individuals or entities, just like any other regulated financial services business.”
However, there has been a spike in the volume of transactions from ruble into bitcoin and to tether, a stablecoin tied to theU.S. dollar on one-to-one pegging, since Russia’s attack on Ukraine. Charles Hayter said this is a “flight to the dollar by any means possible where crypto is but another route to preserve wealth,” as the ruble has plunged.
Coinbase’s Armstrong said, “some ordinary Russians are using crypto as a lifeline now that their currency has collapsed.”
During this week only lawmakers including SenatorElizabeth Warren urged the Treasury Department to ensure that they could make sure crypto companies are compliant with sanctions on Russia. One U.S.government official said it’s unlikely that Russia could evade sanctions using cryptocurrencies.
“The scale that the Russian state would need to successfully circumvent all U.S. and partners’ financial sanctions would almost certainly render cryptocurrency as an ineffective primary tool for the state,” said Carol House, the director of cybersecurity for the National SecurityCouncil, during a webinar last February.
Has blockchain tech proven its utility?
Cryptocurrency proponents often tout the underlying blockchain as a way to have more efficient and traceable transactions. One of the reasons is that there is no intermediary to move the money, unlike traditional financial transactions.
Although many cryptocurrencies still suffer from high fees and slow transaction speeds. They haven’t necessarily seen mass adoption for things like payments.
However, during the war, Ukraine began to accept donations via cryptocurrencies to fund its military, among other things. Ukraine has raised over $60 million via cryptocurrencies, according to analytics firm Elliptic.
At the start of the sanctions against Russia, one of the most strident statements came from Binance, one of the world’s largest crypto exchanges. A Binance spokesperson told that limiting Russians’ access to crypto “would fly in the face of the reason why crypto exists.”
But by 28th Feb, Binance CEO Changpeng Zhao was striking a different tone, saying that the company applies the same sanctions rules as the banks and noting the company’s fundraising efforts. (Binance donated $10 million for humanitarian needs.)
Taking donations via traditional banking methods could be difficult, given the high cost of sending money abroad. It might also take a long time for Ukraine to receive money.
That’s where cryptocurrencies have an advantage, according to Garrick Hileman, visiting fellow at the London School of economics.
“When critical infrastructure is out or there are concerns about how quickly something can get through the traditional banking system, as long as you have internet and a computing device you can transact. That has been one of the promises of crypto,” Hileman said.