Ever since Russia decides to invade Ukraine, there has been a myriad of concerns that have emerged especially concerning the dependence of cryptocurrency and whether Russia can leverage it to avoid sanctions. According to experts, the traceable nature of the blockchain and a lack of liquidity make it difficult for Russians to use cryptocurrency to avoid sanctions. In addition, the debate has also seen industry experts debate whether bitcoin can be considered "digital gold," especially in the wake of the financial turmoil the invasion has caused. Keep reading to find out more of these key issues in greater detail below!
Can Cryptocurrencies Be Used to Circumvent Sanctions? Russia has been subjected to a slew of economic sanctions in the aftermath of its invasion of Ukraine to cut the country off from the global financial system.
The United States has sanctioned key Russian figures and financial institutions and they are also preventing American businesses from doing business with them. Meanwhile, the United States, its European allies, and Canada have blocked significant Russian banks from using the SWIFT interbank messaging system, limiting their access to global financial markets.
The Russian Ruble Plummets as A Result of The Sanctions.
This has spurred a discussion about whether cryptocurrencies, particularly bitcoin, may be used to get around sanctions.
This is due to the fact that bitcoin and other digital currencies are often decentralized, meaning they are not issued or managed by a centralized body like a central bank. The typical financial infrastructure is bypassed when crypto is sent to other users. According to TRM Labs, cryptocurrency will not be able to assist Russia in evading sanctions.
There are, however, several impediments. First, blockchain, the technology that underpins bitcoin, is a public record of transactions. As a result, the transfer of funds from one account to another is simple to track, making it ineffective for evading sanctions.
The most common misconception about cryptocurrencies is that they are untraceable and primarily used for criminal purposes, which is inaccurate. Meanwhile, Russian oligarchs and organizations are unable to relocate their funds due to a lack of liquidity. Due to crypto liquidity is still a small part of the global currency market, moving large sums of money with cryptocurrency is difficult.
Cryptocurrency Exchanges Will Be Closely Monitored.
Cryptocurrency exchanges involving funds suspected to have nefarious origins will be closely monitored. This will apply to all companies, whether they deal with dollars, crypto, gold, real estate, or non-financial assets. Sanctions laws apply to every single business and individual in the United States. Therefore, people would be highly mistaken to think that crypto businesses will not be guided under sanction laws. People will be increasingly screened, and all the transactions from IP addresses that might belong to sanctioned people and companies will be blocked.
According to Crypto Compare, there has been a spike in the volume of transactions from ruble into bitcoin and tether since Russia's attack on Ukraine began. Many Russians have pinned their hopes on bitcoin and are increasingly using it since the Russian ruble has effectively collapsed.
United States lawmakers, including Senator Elizabeth Warren, have increasingly called on the Treasury Department to ensure crypto companies in the United States are compliant with the sanctions that have been placed on Russia.
It has been reiterated that Russia cannot 'circumvent' these sanctions using cryptocurrencies. Cryptocurrencies like bitcoin are very ineffective tools to use in the evasion of all the sanctions placed on them by the US and its associated financial sanctions because these transactions will be easily traceable.
Is Bitcoin Finally Transforming into A New Age, 'Digital Gold'?
Bitcoin supporters have dubbed the digital currency "digital gold." This means that it can store value and, like gold, can serve as a haven asset during economic downturns.
As the conflict in Ukraine raged on, bitcoin experienced a significant one-day surge that took it above $44,000 off the year's lows. Because of this unexpected occurrence, many people believed that bitcoin demonstrated its strengths as a haven asset.
Several specialists have been vocal in their opposition to this proposal. This is because a haven is an asset that can retain its value even during times of market volatility. When it became clear that the United States Federal Reserve was planning to raise interest rates faster than expected, cryptocurrency stocks plunged sharply. This contradicts the idea of it being a "haven."
Has Blockchain Technology Demonstrated Its Worth?
Cryptocurrency supporters frequently tout the underlying blockchain as a means to have more efficient and traceable transactions. One of the reasons for this is that, unlike traditional financial transactions, there is no intermediary to move the money.
However, hefty transaction fees and sluggish transaction speeds continue to plague several cryptocurrencies. For things like payments, they haven't experienced widespread adoption.
During the battle, though, Ukraine began to accept bitcoin donations for a variety of purposes, including funding its military. According to the analytics firm Elliptic, Ukraine has raised more than $50 million through cryptocurrencies.
Accepting donations through traditional banking methods may be difficult, given the high cost of sending money abroad. It may also take a long time for Ukraine to receive funds. This is where cryptocurrencies have an advantage. There are usually concerns about how fast and efficient payments or transactions can be processed through traditional banking systems when the infrastructure is down. With cryptocurrencies, you can transact as long as you have an internet connection and a computing device. In addition, the transactions are recorded on a public ledger, and you can therefore see where the money you send goes and how it is spent after it arrives.
Final Take Away
It is pretty clear that Russia cannot leverage cryptocurrency such as bitcoin to circumvent the harsh sanctions imposed on it in a bid to stabilize its already flailing economy. Also, they cannot use it to preserve their wealth the same way people do with gold. Therefore, this implies that they will have to bear the full brunt of the sanctions and the effect on their economy, for the foreseeable future.
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