Many are asking if Russia’s invasion in Ukraine will lead to the country moving towards cryptocurrency. What does this mean to businesses who hold and/or use crypto?
Security and Cryptography
Crypto transfers can be traced, but it is possible that delegated Russian entities and persons could use cryptocurrencies to avoid sanctions. Decentralized exchanges (DEX), and decentralized finance platforms (DeFi), which use smart contracts for transactions, are vulnerable. DeX and DeFi do not have anti-money laundering (AML/CFT) regulation. This means that customers are not required to conduct due diligence, monitor transactions, or take any other relevant measures such as sanctions screening, customer monitoring, or customer due diligence. It is impossible to identify the owner of a crypto wallet because they are anonymous and do not require identity verification. This is further complicated by the existence of privacy coins and virtual private networks (VPNs).
It is possible to use crypto to bypass sanctions in Iran. A study done by Elliptic found that around 4.5% of Bitcoin mining occurs there. An think-tank has published a report that highlights how Bitcoin can be used in order to bypass sanctions. According to reports, Russia is the third-largest crypto mining company. It’s possible that Bitcoin and other cryptocurrency could be used to purchase imports, just as Iran. Additionally, chainalysis and Solidus Labs both suggested that Russia could resort to ransomware and cyberwarfare to raise funds for cryptocurrencies. TRM Labs has warned that the cryptocurrency market isn’t liquid enough to handle the volume and value of transactions necessary to support the Russian government.
Crypto for the citizenry
It is possible that ordinary Russian citizens will use crypto to protect their wealth against inflation and extreme currency fluctuations. The Russian Central Bank of Russia earlier this year proposed a complete ban on cryptocurrency and mining. However, has not stopped Russian citizens holding cryptoassets: “According the Russian government $5 billion in transactions is conducted each year using cryptocurrency in the country and its population of over 144 million holds approximately $26.5 billion worth crypto in more than 12 million accounts.”
Converting crypto to fiat currency is still difficult due to Russian sanctions and banks’ greater reluctance in processing payments from Russia. It may be difficult to pay for goods and services in the real world from vendors who do not accept cryptocurrency.
What does this all mean for crypto-using firms?
Businesses that hold/use crypto must ensure that transactions are done with known counterparts through centralized exchanges that comply with AML/CFT regulations. To avoid being subject to sanctions, firms should make sure that the public addresses of outgoing and incoming payments are checked. The balance will need to be struck between legitimate and non-sanctioned business entities and civilians who have access to funds.
Our blog offers additional information for firms.
Our interactive dashboard lets you explore the most recent sanctions against Russia.
