How Russia could use cryptocurrencies to minimize the impact of sanctions |

How Russia could use cryptocurrencies to minimize the impact of sanctions

The buying and selling of cryptocurrencies is virtually untraceable, and traditional banks lack the means to block crypto transactions.

How Russia could use cryptocurrencies to minimize the impact of sanctions

Russian companies possess an assortment of cryptocurrency tools that can be used to minimize the impact of sanctions, including ransomware and a digital ruble. 

When the US barred Americans from doing business with Russian companies (like banks and oil and gas developers) in 2014, after Russia invaded and annexed Crimea, the hit to Russia’s economy was severe. The sanctions dished out by the West cost Russia around $50 billion a year.

But since then, the market for digital assets has ballooned. Cryptocurrencies and NFTs are bigger than ever. Which is bad news for enforcers of sanctions, and good news for those who are being subjected to sanctions like Russia.

This week the US hit Russia with a fresh wave of sanctions over the armed conflict in Ukraine, aiming to thwart Russia’s access to foreign capital. But Russian entities plan to blunt the force of sanctions by making deals with digital assets. These entities will use cryptos to bypass traditional banks. Traditional banks can block the execution of deals involving traditional money but cannot block any deals involving digital currencies. 

Before Russia invaded Ukraine, Russia had a lot of time to think about how to dodge the consequences of sanctions and they’re more than ready to face whatever the West throws at them.

Sanctions have been used as a powerful diplomatic tools by Western nations because the dollar is the world’s reserve currency and used in transactions worldwide, but there is no question that the emergence of digital assets has the potential to make sanctions irrelevant unless governments pass laws to control cryptos as well. 

To apply sanctions, a government complies a list of people and businesses that its citizens must not do business with. Anyone caught doing business with a banned entity faces heavy fines. But the real gatekeeper for any effective sanctions program are banks. Banks have the power to block money transfers and transactions. But banks to do not have eyes and ears in the crypto-sphere so they can’t block anything that goes on there. 

Banks must abide by the ‘Know Your Customer’ protocol, which means that a client’s identity must be verified. But identities are hidden in the buying and selling of digital assets, which makes transactions virtually untraceable. 

Ransomware could also help the Russian government steal digital currencies to make up for lost revenue. Ransomware attacks work like this: A hacker breaks into computer networks and locks up data until the victim pays for its release, usually in cryptocurrency. Last year, about 74% of global ransomware revenue (cryptos worth more than $400 million) went to Russian affiliated entities.

Even though cryptocurrency transactions are recorded on the blockchain, which does make said transactions transparent, Russia has developed new tools to mask the origin of such transactions. This will allow businesses to trade with Russian entities without detection.

Iran and North Korea have employed such workarounds to minimize the impact of Western sanctions. North Korea has even used ransomware to steal cryptocurrencies to fund its nuclear program.

In October 2020, Russia’s central bank announced that the new “digital ruble” would make Russia less dependent on the US and allow Russia to easily dodge sanctions. It would allow Russian entities to do business outside the international banking system.

China, Russia’s key ally and largest trading partner in exports and imports, has already launched its own central bank digital currency. 

Tags : Cryptocurrencies