Cryptocurrencies provide several ways to circumvent sanctions. And they all will have a negative effect on the cryptoindustry.
In recent years, the attitude of the Russian authorities to cryptocurrencies has changed markedly. If only relatively recently they discussed a draft law on imprisonment for up to seven years for using cryptocurrencies, now we see a demonstration of a clear interest in this technology. And the potential possibility of using cryptocurrencies to circumvent the notorious external sanctions has played a significant role in this sharp change of mood.
One of the first to use blockchain technology for this purpose was suggested by State Duma deputy from the LDPR Andrei Lugovoi, expressing this idea back in the early summer of 2016. Following him last winter, Internet ombudsman Dmitry Marinichev proposed to make a cryptocurrency offshore from the Crimea. Already this winter, the adviser to the President of the Russian Federation on regional economic integration, Sergey Glazyev, said about the possibility of using to circumvent the sanctions of the national cryptocurrency.
How can cryptocurrencies help those who have come under sanctions? There are three properties of cryptocurrencies that are useful in this context: independence, ignorance of state borders, and relative anonymity. These properties are theoretically able to help solve the main problems that sanctions create, in particular for Russia - blocking investments and lending, as well as a ban on the supply of certain technologies and goods.
At the same time there are several "but." In order to conduct business with a party under sanctions, without fear of punishment, organizations and individuals must be sure that information about their connection does not come up. And here the problems begin.
The fact is that the anonymity of most cryptocurrencies is rather arbitrary. Although it is initially impossible to relate a particular wallet to its owner, the entire transaction history is transparent. And in the current situation, in order to get real benefits from cryptocurrency, at some point it will have to be converted into fiat money. There are two main ways to do this. The first is to use a licensed crypto exchange. But this means de-anonymization within the framework of the “know your customer” policy. And although exchanges usually try to keep the personal data of their users secret, they do not always succeed - recall the case with Coinbase, which disclosed data on 13000 of its clients by a court decision.
The second method is the use of an OTC broker. Here, too, their risks, including the risk of running into a fraudster or a figurehead. Of course, the use of anonymous cryptocurrencies, such as Monero, can solve some of the problems. But a company that, for example, sold for an anonymous cryptocurrency of high-tech equipment, bypassing the sanctions, will still have to somehow explain to the tax authorities the origin of the funds - and that means additional costs and risks associated with their laundering.
State cryptocurrency
As for the path followed by Venezuela, and which Russia is also thinking about, there are difficulties. Yes, the state can make its cryptocurrency secured with real assets, as in the case of Venezuelan El Petro - and this will undoubtedly increase the attractiveness of such a currency. But what will prevent the extension of sanctions to this currency, providing punishment for those who get caught in transactions with it? This, in fact, was done by Donald Trump, who signed a decree prohibiting American citizens and companies from carrying out any operations with cryptocurrencies issued by the Venezuelan state. The first results were not long in coming - BitFinex, one of the largest crypto exchanges, refused to list El Petro. The situation is evolving, and at the moment it is not clear where it will come as a result, but so far Washington has demonstrated that it is not going to allow its sanctions to be circumvented so easily.
North Korean incident
Speaking of cryptocurrency in the context of sanctions, it is impossible not to mention North Korea. She also tries to use cryptocurrencies to leave sanctions, but she does this in a somewhat “non-trivial” way. Over the past year, numerous allegations have been heard against North Korea of crypto-burglings, hacker attacks and, finally, the authorship of the notorious ransomware virus Wanna Cry - that is, attempts to accumulate cryptocurrency in a criminal way.
Washington Anxiety
The potential use of cryptocurrencies to offset the effect of sanctions has caused the natural anxiety of American politicians. And although US Treasury Secretary Stephen Mnuchin said in January that he was not worried about the possibility of circumventing sanctions with the help of cryptocurrencies, not everyone shares his opinion. At the same time, Mnuchin himself pointed out the need to prevent cryptocurrency wallets from becoming the digital equivalent of Swiss anonymous bank accounts.
After the launch of El Petro, Washington began to react more noticeably. In addition to the already mentioned prohibition for American citizens and organizations on operations with this and any future Venezuelan cryptocurrency, a decree was signed imposing additional sanctions for the fact of attempting to bypass the current ones. And in March, the US Treasury announced that it was going to put cryptocurrency addresses in the sanction lists.
In principle, the fact that the development of blockchain technologies in the future can reduce the weight of the dollar as a reserve currency has already been voiced by American experts, in particular, the former adviser to the president on national security Juan Zarate. But the effectiveness of sanctions depends on the role of the dollar as a reserve currency. But this prospect still looks distant.
Impact on the crypto community
Of course, there is one more important question: how will this confrontation on the cryptocurrency field between the compilers of the sanctions lists and their defendants affect the crypto-community and the cryptocurrency ecosystem as a whole? Looking at the current situation, it is already possible to make some assumptions.
Overwhelmingly, cryptobirds, being centralized institutions in the decentralized cryptomir, are now one of the main targets for regulators around the world. Most likely, they will also be among the first to feel the increased pressure from regulators trying to identify violators of the sanctions regime. Some of them are already trying to take preemptive steps - for example, Poloniex, the largest crypto-exchange, has included in its user agreement a clause stating that by agreeing to use the services of the exchange, the user guarantees that he is not under the influence of US sanctions. On the other hand, this regulatory pressure can give impetus to the development of decentralized exchanges, which are still in the vast majority.
What will affect the stock exchange will inevitably affect both investors and traders using their services, who may face both minor troubles in the form of a stricter KYC policy (“know your client”), and much more serious ones, like freezing accounts and even closing Exchange Suffice it to recall the fate of BTC-E and its users.
Businesses that accept cryptocurrencies as payment and that have reason to fear that some of their clients may be on the sanction lists will have to somehow check them for this, which will cause additional costs and may result in the refusal to provide such a payment option. Finally, the spread of state-owned cryptocurrencies created to circumvent sanctions may well worsen the reputation of the cryptocurrencies as a whole, moreover, regardless of the success of such attempts.
Thus, in the short term, cryptocurrencies may be a more or less effective method of withdrawing from international sanctions or mitigating their effect, but this will inevitably cause an appropriate response from regulators. At the same time, the escalation of confrontation between regulators and persons involved in the sanction lists is likely to have a negative impact on the entire cryptosocommunity.