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 the reasons.
Cryptocurrencies won’t help Russia get around sanctions
The sharp rise in the price of cryptocurrencies since Friday, as well as that of Coinbase’s stock, surprises 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 and, among them, that of a use of digital assets by Russia to circumvent international economic sanctions. Indeed, as crypto-assets cannot be censored, they can be freely used by everyone.
However, this explanation is not admissible 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, especially 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. In particular, the president of the European Central Bank called for urgent regulation to prevent Russia from using cryptocurrencies.
Transparency of cryptocurrency transactions, a major problem for Russia
We will summarize the three main reasons given by Jake Chervinsky to rule out Russia’s circumvention of sanctions through digital assets. The first of the reasons 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 made in dollars, another currency, Bitcoin (BTC) or “shells” jokes Chervinsky, it makes no difference. Indeed, the ban is global and the American exchange platforms are subject to American 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. One thinks of the seven transactions per second of the Bitcoin network, which pales into insignificance in such situations.
Also, the transparency conferred on public blockchains would be totally counterproductive, as it would be easy to find out about every single expenditure of Russia. 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 specializing in crypto-crime investigations.
Finally, Vladimir Putin and Russia have experience with international economic sanctions since 2014 and the annexation of Crimea. Yet, digital assets have never been considered to circumvent these sanctions. Therefore, Russia should 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.
