Russia May Attempt to Evade Sanctions Using Cryptocurrency
Most have heard about the inevitable rise in popularity of cryptocurrencies. While it may be exciting for enthusiasts and investors, they may also be a way for Russia to evade sanctions.
Sanctions continue to be the most popular diplomatic tool for the U.S. and other European countries because the U.S. dollar is the world’s reserve currency, meaning that it is a large portion of currency in central banks that is then used for major international transactions. They could easily influence countries they do not consider allies, such as Russia.
Usually, sanctions programs rely on the global financial system to provide insight and enforcement. This means that banks and other financial institutions are required to cooperate and track the movement of money and once they do, report it back to authorities. Now that the world has become aware of the benefits and utility of cryptocurrencies, sanctions will have significantly less impact and may not prove to be enough of a threat.
This sort of thing is not unprecedented. According to a U.N. report, North Korea has used ransomware to steal cryptocurrency and fund its nuclear program. According to the New York Times, “in May, the consulting firm Elliptic described how Iran was using revenue from Bitcoin mining to make up for the limitations on its ability to sell oil because of sanctions.” Cryptocurrency transactions are recorded on the coins’s blockchain, however it is possible to work around the issue of transparency and make them untraceable.
There are several different ways to make cryptocurrency transactions untraceable/ unidentifiable. There can be several different layers that are used to complicate the process and make everything anonymous. One of the most popular ways would be to use a mixer/tumbler. The bitcoin would be deposited into the tumbler, it would mix with other people’s cryptocurrencies, and finally the recipient address would receive the mixed cryptocurrencies. By doing this, it is near impossible to track the bitcoin, as there is no connection between the original transaction and the final address.
According to Investopedia, Russia is developing its own central bank digital currency (CBDC), a "digital ruble" designed for use by trade partners without first converting it into U.S. dollars. Russia could utilize various cryptocurrency- related tools to skirt sanctions, the key is just to identify ways in which trade can be possible without the U.S. dollar.