The Russian invasion of Ukraine has attracted widespread and sweeping sanctions from the West. While the European Union imposed sanctions aimed at "Kremlin interests," the US has announced a wave of sanctions aimed at Russia's banks and state-owned enterprises, particularly transfers of money through the traditional banking system. Germany and the UK too have announced sanctions targeting the Russian economy. But there is a growing consensus that Russian entities may use cryptocurrency to mitigate the impacts of these sanctions. Many believe that Russian banks and oligarchs could put money into Bitcoin and other cryptocurrencies to evade the impact.
To pressure a country into adhering to international law and its demands, the US often resorts to imposing sanctions, a powerful diplomatic tool, as the US dollar is the world's preferred reserve currency and the most widely used medium for cross-border payments across the globe. However, US officials also believe the rise of cryptocurrency threatens their dominance and lessens the impact of these sanctions.
For sanctions to be effective, they need the banks and other financial institutions to track the flow of money, so that transactions involving entities that have been sanctioned can be blocked. However, cryptocurrency allows sanctioned entities to skirt the banking system and thus making tracking of transactions difficult.
Supporters of cryptocurrency often cite this character of the crypto industry to say that it allows an independent way of doing business. But this same feature can now allow sanctioned entities to transact business under the radar.
The key to Russia avoiding these sanctions is to not conduct trade using the US dollar. Russia might have already gamed these scenarios and so is developing its own central bank digital currency (CBDC), a "digital ruble". There's also the possibility of hacking these digital assets, which would again allow Russian entities to recoup the revenue lost to sanctions.
Cryptocurrency transactions require data to be entered in blockchain, which makes them transparent. It is safe to say that Russian tech experts can develop tools that can hide these transactions long enough to lessen the sanctions' impact.
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