Global Community to Block Russia from Bypassing Sanctions Through Crypto

Neither this post nor any other on cryptofal.com should be taken as financial advice. It is not.

As the war between Russia and Ukraine escalates, so have the sanctions imposed on Russia by the international community. In an effort to completely isolate their economy, world leaders are scrambling to ensure that the Russian government and its oligarchs are unable to circumvent sanctions through the use of cryptocurrencies.

As such, this conflict has highlighted the double edged sword of cryptocurrency in times when centralized institutions fail or are unavailable. The call for oversight and regulation has begun over concerns of Russia’s increased usage of cryptocurrency, but it cannot be ignored that it simultaneously sustains the Ukranians on two fronts–first through crowdfunded aid to the government and second by offering a way for its citizens to use their assets.  

The concern of leaders with certain cryptocurrencies is due to its permissionless and trustless nature, allowing it to bypass borders and certain restrictions. Some governments have even gone as far to request a ban of Russia and its citizens from utilizing crypto platforms.  This has spilled over into a larger discussion on whether this objective has gone too far.  Many of these requests come from government officials who still have a limited knowledge of the space and how the system works.     

First, the amount of crypto an entire state would need to execute large monetary transactions would be immediately evident and traceable on the blockchain.  Second, any actors looking to buy fiat currencies with crypto would require an exchange, and many of these exchanges are subject to compliance of the same laws and regulations as other financial institutions in most countries.  Finally, the amount of liquidity required to sustain an entire country such as Russia would be beyond what the current crypto market cap could supply.    

At the very least, crypto could serve as an avenue through which some individuals may transact, but the rush to quickly block any crypto holders from Russia begs the question of morality. The citizens of Russia are the ones who will bear the brunt of these sanctions, many of whom are not a party to their government's war effort.

With the ruble depreciating at a record rate and Russia’s economy quickly collapsing, crypto may serve as the only lifeline for the Russian people, as it has for the Ukrainians protecting their country.