Cryptocurrencies role in economic sanctions

Bitcoin was has been in the news a lot lately, due to the War in Ukraine and western nations efforts to use the power of currency to end the war, and put an end to one of the largest Humanitarian Crises of the last 100 years. It’s a sad testament to the continuing inhumanity of mankind, that woman and children are again fleeing their homes to avoid missles and mortars aimed at homes and apartment buildings. What kind of animal uses such weapons on women and children? Human animals.

Anyway, some Politicians and government officials are concerned that that anonymous nature of Bitcoin will allow the Russian government to evade or circumvent sanctions. However testimony from experts in AntiMoney Laundering, Cyber-crimes, US Treasury and Bitcoin blockchain analyst who work for both governments and private industry tracking money on the Bitcoin blockchain have three things to say about this.

First, Bitcoin wallets is anonymous up to a point.

Bitcoin accounts are anonymous, but they are not untraceable. One of the fallacies of using cryptocurrency for crime is the concept of hidden or secret transactions. Cryptocurrency is the opposite of secret. Cryptocurrency uses the power of cryptography to lock or secure the ledger, but the ledger is public and transparent.

When you are on the internet, you leave your fingerprints, data that leads back to you every where, email accounts, phone numbers, bank accounts, addresses, and IP addresses. The information people need to provide to use all the services necessary can be used to trace your identity.

Second, Bitcoin volume isn’t that big.

The size of transaction volume on Bitcoin compared to the size of the Russian economy is a mountain to a molehill comparison. In practice, Bitcoin is to small to be a viable pipeline for even one oligarchs wealth, and certainly to small for Russia to funnel any significant amount of its economic activity through Bitcoin. Russia is a country of about 144 million people, and about the 4th largest country on the earth population wise, behind China, India and United States. And despite its dismal economic performance in the years since the collapse of the USSR in 1991, its still one of the worlds largest economies, although not number 4.

As any trader in a small pond can tell you, whales make big splashes, they move markets up or down. Russia entering the Bitcoin market would dwarf even the purchases of Elon Musk or Micheal Saylor. The price of Bitcoin would not only skyrocket, but it would be nearly impossible to hide even a single billion dollar transaction. This is in a nation whose natural gas revenues from the European Union country of Germany alone were 30 billion dollars in the last 30 days. This type of volume has a massive effect, can’t be hidden and could be used to reveal Russian cash movements. Which would allow the west to penalize all those trading in sanctioned or blocked goods.

Everyone needs On-ramps and off-ramps

Everyone who uses cryptocurrency needs an on-ramp to get their fiat onto the blockchains, and an off ramp to get their fiat off the blockchains, and most on-ramps and off-ramps, require KYC, and involve banks.

So even if your moving small enough amounts to blend in with the crowd, you have to identify yourself to banks. And if your a Russian Oligarch or a Russian government entity, you funds will be frozen.

An astonishing report I read, indicated that Russia built up a cash reserve of 360 billion dollars, but more then half was in banks outside Russia, and it is now frozen.

What do experts say?

U.S. Treasury Department, Financial Crimes Enforcement Network.

“You can’t flip a switch overnight and run a G-20 economy on cryptocurrency, there just isn’t enough liquidity,” said Michael Mosier, former acting director of the Financial Crimes Enforcement Network, an arm of the U.S. Treasury Department. source

U.S. National Security Council’s director of cybersecurity.

The U.S. National Security Council’s director of cybersecurity, Carole House, considers it exceedingly unlikely that Russia could work around sanctions with cryptocurrency at the scale it would need. The U.S. Treasury is similarly unconcerned because it’s just too hard to move as much money as Russia would need through the crypto exchange system unnoticed. Source

US Senator Elizabeth Warren

“No one can argue that Russia can evade sanctions by moving all of its assets into crypto,” Ms. Warren said. “But for Putin and his oligarchs, for a billion or two, a few hundred million, crypto looks like a pretty good option,” she added, referring to Russia’s president, Vladimir Putin. source

Source

TRM Labs a blockchain intelligence company.

“We have never had more visibility of financial flows and money laundering than we do today in cryptocurrency,” said Ari Redbord, a former Treasury official who now heads legal and government affairs for the blockchain intelligence company TRM Labs. While obfuscation tools can be useful for smaller criminal organizations and hackers, “it is hard to offramp crypto in large amounts.” source

ChainAnalytics

“We have not seen evidence of Russia or Putin systematically using cryptocurrencies to evade sanctions at this time,” said Jonathan Levin, co-founder and chief strategy officer at Chainalysis Inc., a digital currency analytics firm. source

Binance

Binance, the world’s largest cryptocurrency exchange, said that

.. .. blocking all Russian users “would fly in the face of the reason why crypto exists.” But it’s unlikely that this can be of any real use for Moscow, because there just aren’t enough dollars in the crypto trading system to meet the needs of a country of Russia’s size. Source

Last words

Bitcoin won’t help Russia circumvent sanctions.

• Bitcoin doesn’t appear to be a viable route for large scale circumvention of sanctions for the Russian government.

• Bitcoin trading volume is to small for the Oligarchs, and far to small for the Russian government to use it to move significant amounts of cash transactions.

• ‘Bitcoin accounts are anonymous, but they can be traced through fingerprints we leave on the internet.

• ‘Everybody needs off-ramps and on-ramps to cryptocurrency networks. These off ramps are centralized exchanges and banks, which are under heavy government regulation, scrutiny and reporting.

But for Russian Citzens…

• However for ordinary, non-billionaire Russian citizens, Bitcoin was born for such a time as this.
• ‘If they use Bitcoin providers inside their own country, and don’t use the Swift Money Transfer system, and don’t use PayPal, ApplePay, GooglePay, Visa, American Express or Mastercard, they maybe able to buy Bitcoin.
• ‘Then if Russian Vendors provide the infra-structure for Russians to trade Bitcoin for goods and services, they can use Bitcoin.

Those are my thoughts and research on the topic, what do you think?

@shortsegments

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