Russia's plan to avoid sanctions

Russia is facing today, some of the toughest sanctions ever issued to a country which, if effective (and most likely will be effective), will make the Russian economy plunge into the abyss while the Russian citizens, will suffer greatly on the back of their leader decisions (if you don’t believe in the effectiveness of those sanctions, have a look at Syria, North Korea, Iran, Yemen, Sudan, Crimea and see where they are from an economical point of view, quality of life point of view and freedom of movement point of view).

While the reasons are well known, aimed at stopping an unwanted invasion and a bloody war, there are people out there looking at the solutions that might be used by the Russian government, in order to avoid the full effect of the imposed sanctions.

Very often, the use of cryptocurrencies and mining of cryptocurrencies comes into this conversation, as the way that Russia plans to avoid the sanctions.

Over the last 5 years, I always expressed a concern in the way you can use a digital wallet and a cryptocurrency such as Bitcoin (BTC). Operating in a regulated financial services system, you need to make sure you’re dealing with people that are not convicted criminals (so client screening is a must), earned their fortunes fair and square, from legitimate businesses or well rewarded jobs, paid the due tax on their income or dividends and can make proof of all of the above (via bank statements, payslips, investment account statements, sell of property contracts, etc.), accepting their money into bank accounts or placing them into financial markets to be invested (into liquid assets). Then again, if I have a digital wallet with some BTC on it, all of a sudden, I can do whatever I want with it, I can pay whoever I want with it (including sanctioned Russian entities or individuals), or receive BTC (from sanctioned entities or individuals) WITHOUT ANYONE KNOWING WHO I PAID OR WHO I RECEIVED BTC FROM. With no regulation, there is only chaos. With no order, its only mess and humans should have evolved from the wild west days by now. Strong regulation is the tool that makes our financial system safer, more predictable, more reliable and with less drama. It is something I strongly believe in and while I know there are still people going around the rules out there, I always believe that nothing escapes unpunished in the end.

While crypto exchanges around the world, went through increased levels of client due diligence (the exchange facilitates the move from Fiat currency to Cryptocurrency and vice versa), the operations on the blockchain (wallet to wallet) have at this point no checks and balances in place, in order to make sure you are not touching proceeds generated by criminal activities (such as human trafficking, drug trafficking, arms trafficking, corruption and traffic of influence, tax avoidance and evasion, sanctioned entities or individuals, terrorism financing, etc.) nor that you are not helping any of the above listed (and not only) activities, as majority of the digital wallets out there, are held anonymously and to move crypto from one wallet to another, you only need the wallet ID and nothing else.

A digital wallet is extremely easy to move across borders, pass from one to another (as long as the log in credentials are passed on as well) and there is no way to verify if 1 individual or entity held that wallet from the very beginning, or it just had it passed on to 5 minutes ago, in a huge contrast to the rules and regulations applicable in the regulated financial world.

That being said, I see two potential (reasonable) outcomes on the back of this problem:

- Western governments, will push for regulation to be implemented on the blockchain (wallet to wallet) and part of that regulation, will be for the wallets to not be held anonymously any further.

- If such regulation is not being pushed through (technically impossible or any sort of a solid push back), you might even see a ban in the use of crypto currencies which are not complying to such rules (not allowing anyone to accept such payment, nor to allow exchanges to facilitate the exchange between a "banned" crypto to any other currency, digital or fiat).

What I know right now is that, if Russia, Iran or any other sanctioned country, entity or individual, wants to avoid sanctions, can do it without too much headache, by using cryptocurrencies that are allowing “anonymous held wallets” on their blockchain. I also know that such wallet, allowed a Ukrainian to leave a country destroyed by war, without needing to cue at the bank to withdraw foreign currency from his account and flee to safety but for that purpose, you don’t need to hold a wallet anonymously.

I also know that Russia (just like Iran as well), will soon have a massive surplus of energy, which while it can’t be sold outside the country (either due to the sanctions or the lack of infrastructure for payments due to the SWIFT disconnection) might be used for mining, allowing them to be paid, while they shouldn’t be paid anything (paying Russia anything at this point, helps them to finance the war in Ukraine, which is wrong at every level).

Also, it brings back into question the inventor; who invented BTC and what was its actual purpose? Was it invented by a “freedom seeker” or was it invented by a criminal government, organisation or individual, in order to avoid any measures imposed against them, as a result of their criminal actions. As the inventor is as anonymous as the wallets, we are risking supporting crimes against humanity, while using cryptocurrencies.

Have that in mind next time you think crypto, in its current shape, is the future.