Following Russia’s invasion of Ukraine, strong economic sanctions have been imposed by the Europeans and Americans. In particular, the major Russian banks no longer have access to the SWIFT monetary system. Many voices were then raised to believe that crypto-currencies could be beneficial to circumvent these sanctions. However, this is not the opinion of some experts who explain why.
Cryptocurrencies won’t help Russia get around sanctions
The sharp rise in cryptocurrency prices since Friday, as well as Coinbase’s stock price, is surprising many observers. The surprise is even greater when we see that the stock market is in free fall since the invasion of Ukraine by Russia.
Some explanations emerge, among them that Russia is using digital assets to circumvent international economic sanctions. Indeed, as crypto-assets cannot be censored, they can be freely used by all.
However, this explanation is not acceptable according to some experts. Indeed, Jake Chervinsky, who works for the Blockchain Association, believes that Russia will not be able to use crypto-currencies to override the sanctions, particularly because of scalability issues.
In a long series of 21 tweets, Chervinsky refuted the arguments of the most anti-crypto politicians, namely Christine Lagarde and Hillary Clinton. The European Central Bank president notably called for urgent regulation to prevent Russia from using cryptocurrencies.
1/ Russia can’t and won’t use crypto to evade sanctions.
Concerns about crypto’s use for sanctions evasion are totally unfounded. They fundamentally misunderstand:
– how sanctions work
– how crypto markets work
– how Putin is actually trying to mitigate sanctionsI’ll explain
– Jake Chervinsky (@jchervinsky) March 1, 2022
Transparency of cryptocurrency transactions a major issue for Russia
We will summarise the three main reasons put forward by Jake Chervinsky to rule out Russian circumvention of sanctions through digital assets. The first reason is related to the United States: any US citizen or US company is prevented from conducting a financial transaction with Russia.
In other words, whether the transaction is in dollars, another currency, Bitcoin (BTC) or “shells”, Chervinsky jokes, it makes no difference. Indeed, the ban is global and US trading platforms are subject to US regulation, which they must respect.
The second reason is due to the very principles of cryptocurrencies. The network is too slow to cover Russia’s needs. The seven transactions per second of the Bitcoin network pale into insignificance in such situations.
Also, the transparency conferred on public blockchains would be totally counterproductive, as it would be easy to find out how much Russia is spending. In other words, the Russian government would have no power to counteract the publicity of transactions. This argument is echoed by Ari Redbord, legal director of TRM Labs, a firm specialising in crypto-crime investigations.
Finally, Vladimir Putin and Russia have experience of international economic sanctions since 2014 and the annexation of Crimea. Yet, digital assets were never considered to circumvent these sanctions. Russia should therefore consider another plan to deal with them.
In conclusion, it seems difficult for Putin and the Central Bank of Russia to use cryptocurrencies to replace the billions of dollars frozen in Western banks.
