Russia Uses Crypto to Avoid Sanctions – Reality or Fantasy?

The special military action against Iran has led to economic sanctions imposed on Russia by Western economies, which has caused certain damage to the Russian economy. Still, the West is expected to target Putin and the Russian oligarchs who support him, hurting them the most. The strategy aims to prevent these individuals from using or transferring their wealth by freezing assets they hold overseas and blocking financial transactions. The continued operation of Russian cryptocurrency exchanges, however, has U.S. officials concerned. Russia and its banks may look more closely at cryptocurrencies as they can replace the U.S. dollar as a medium for international transactions.

But would this be a good way for Russia to resist sanctions?

Concerns from US Senator Elizabeth Warren

“Cryptocurrencies have the potential to undermine sanctions on Russia and save Putin and his cronies financially.”

Since the wave of financial sanctions, trading volumes between the Russian ruble and various crypto assets have soared to more than double in the past. The scale suggests that the main buyers of cryptocurrencies are ordinary Russians. At 140:1 against the U.S. dollar when the ruble initially devalued, ordinary Russian residents were trying to preserve their savings by exchanging cryptocurrencies, and the ruble has since recovered in value.

Why choose cryptocurrency? Will avoiding sanctions through cryptocurrency be effective?

Cryptocurrencies are designed not to be subject to centralized financial institutions such as governments, commercial banks, or central banks. They support peer-to-peer (P2P) transfers without any intermediaries. Due to this advantage, sanctioned individuals and countries such as Russia can use cryptocurrencies to back their assets and continue international payments.

Another reason regulators and central banks dislike cryptocurrencies is their ability to bypass the international banking system, which is crucial for enforcing sanctions. The international banking system effectively acts as a listening post for global financial transactions, but potentially encrypted transactions offer another way to make irreversible cross-border transactions.

According to Trading Economis.com: "With a population of 144 million and a GDP of $1.5 trillion, it's no surprise that Russia is a key player in global trade. It is the 14th largest in the world by merchandise exports. economy - exports $337 billion worth of goods. Russia has a trade surplus and its merchandise imports total $232 billion." So, given these trade figures, it is difficult for Russia to effectively move from ruble, dollar, yen, euro , GBP, etc. into a basket of cryptocurrencies. Mass movements of cryptocurrencies are easy to notice; the transparency afforded by cryptocurrencies would expose Russia, making it possible to quickly identify and cut off Russian sanctions evasion.

How Cryptocurrencies Can Avoid Sanctions Challenges Transaction Traceability: While cryptocurrencies function on decentralized systems, their transparency makes it difficult to move money and transfer value in large quantities. Most cryptocurrency transactions are recorded on publicly available blockchain ledgers: ledgers of activity can be traced, exposing transactions and making it possible to identify and prevent evasion of sanctions. Chainalysis also said the cryptocurrency sector has tools to prevent sanctioned individuals from evading detection.

Major exchanges are currently on high alert: Although cryptocurrency exchanges have not been legally authorized to block users across Russia, they have agreed to abide by the sanctions rules. Exchanges such as Coinbase, Binance and Kraken have all said they have a way of distinguishing between Russian politicians and ordinary people, many of whom disagree with the war. This will make it difficult for the Russian elite to trade on these exchanges.

Another thing the Russian government could do if they are determined to resist sanctions on the use of cryptocurrencies is to try to develop a network of complicit trading services that help hide crypto ownership. There are also some untraceable cryptocurrencies, privacy-focused Monero being one example.

in conclusion:

Whether Russia uses cryptocurrencies to avoid sanctions remains to be seen, despite speculation and hints that Russia’s top brass may have embraced cryptocurrencies as a means of fending off financial sanctions. Meanwhile, the European Union is taking this threat seriously, as they recently targeted digital wallets held by Russians as part of European sanctions against Russia. However, there are challenges in using cryptocurrencies to circumvent financial sanctions, and what some may be more concerned about is the impact of Russian sanctions on the crypto industry.