Can Putin Explore Cryptocurrencies to Get Around Western Sanctions?

 Vladimir Putin, like many others, when it comes to the complex world of cryptocurrencies, is simple: "Of course, we also have competitive advantages here, especially in pseudo-mining." After the events of this weekend, when Russia was under severe economic sanctions, the President of Russia may consider taking advantage of these benefits.

Putin released the announcement in January, days after the country’s central bank proposed a total ban on cryptocurrency trading and mining. When it comes to bitcoin, the foundation of cryptocurrency, mining is an energy-intensive process where computers authenticate new bitcoin transactions by writing them into a virtual blockchain and creating new bitcoins for them as a reward.

In its warning, the Central Bank of Russia stressed that cryptocurrency mining poses "significant risks to the economy and financial stability." A week later, Putin was less confident, noting that Russia has cryptocurrency mining advantages thanks to its vast wealth of energy and galaxy knowledge.

Putin’s skepticism about a full-fledged crypto embargo could intensify as the West puts tremendous pressure on Russia’s financial system with new sanctions. EU, US, UK, and Canada with $ 640 billion ($ 47.478 billion) in the country’s foreign exchange reserves - a financial reserve used as a reserve for emergencies.

The same group also announced that it would ban anonymous Russian banks from using Swift, the main global payment messaging system used by banks for cross-border money transfers.

Russia and its banks may look at cryptocurrencies because they could be an alternative means of international exchange against the dollar. Cryptocurrencies can also bypass the international banking system required to enforce sanctions as a listening point for global financial transactions (a feature of cryptocurrencies that is both hated by security officials and banks). and provides an alternative tool for cross-border transactions.

“We are at a turning point in world history where nation-state central banks no longer have direct control over the financial instruments that were once used to enforce global rules. Eric Michaud, the co-founder of the blockchain security conference Off The Chain, said: “There is a need for infrastructure and infrastructure to create institutions the size of Russia,” he said.
However, other cryptocurrency experts say the transparency of the blockchain makes it difficult for companies with sanctions to use to avoid penalties.

However, some nation-states have turned to bitcoin as a lifesaver. Iran, which is under heavy U.S. sanctions but has large fossil fuel reserves, is effectively turning its surplus energy into cash by buying bitcoins from Iranian bitcoin miners (who run on fossil fuels). and used the money to buy imports.

David Carlyle, director of policy and regulation at Elliptics, said cryptocurrency mining was “one of the most viable options” for Russia, which is currently the third-largest country in bitcoin mining, according to the University of Cambridge.
“In addition to real cryptocurrencies that can be used to trade with governments, Russia can also tax major financial activities.

It can use bitcoin to pay for imports of products and services that are otherwise difficult to access due to restrictions in the US and Europe. †

Companies like Elliptic offer software that allows companies to detect illegal cryptocurrency transactions.

According to Chainalysis, a blockchain analysis company, blockchain transparency makes it difficult to use cryptocurrencies as a basis to avoid overnight penalties. “Enforcement actions are recorded in public, flexible, unaltered blockchain ledgers,” said Caroline Malcolm, director of international public policy and research at Chainalysis.

There are other ways the Russians are using it, including getting North Korea to hack crypto platforms that Chainalysis says brought Kim Jong Un $ 400 million just last year.

There have also been ransomware attacks in which criminal groups encrypt a target computer and ask the cryptocurrency to unlock it, although Russia’s FSB security service recently claimed that distributed the Ravil ransomware package. Last year, the U.S. Treasury Department authorized two Russian cryptocurrency exchanges, SUEX OTC and Chatex, for allegedly laundering ransomware proceeds. On Monday, cryptocurrency exchange Binance announced that it had suspended the accounts of all Russian clients affected by the sanctions.

According to Elliptic’s Carlyle, the Russian state could use the exchange network to block the ownership of cryptocurrencies.

There are also cryptocurrencies that are difficult to identify, such as Monero, that focus on privacy.
But Carlisle added that the scale of the economic restrictions Russia faces will not be enough for cryptocurrencies. "Cryptocurrency alone will not allow Russia to exceed financial restrictions to the extent necessary to fully mitigate the effects of sanctions." The total wealth of Russia’s banking sector is $ 1.4 trillion, which is roughly equal to the size of the entire cryptocurrency market.

There are also alternatives to cryptocurrencies. Swift’s blocking could encourage Russian banks to support its new payment network, the International Cross-Border Payments System.

 “It is possible that China will support Russia’s line on unfair sanctions and offer a way to soften them by allowing Russia to use CIPS,” said Alexi Drew, chief analyst at research institute RAND Europe.

Or the answer may be closer to home. The Central Bank of Russia also produces its own digital ruble.