Experts fear cryptocurrencies may help Russia evade sanctions

The United States and Europe, among other countries, have sanctioned Russia in response to its invasion of Ukraine in an attempt to hurt the country’s economy. However, Russia might be turning to cryptocurrencies as a way to circumvent the sanctions imposed on the country. 

Despite the ongoing war in Ukraine, Bitcoin saw its largest single-day increase in a year on Monday. By Tuesday, Bitcoin hiked by 13.32% to $43,390 at 4:30 a.m. Ethereum rose to $2,900, an increase of 10.53%. Dogecoin went up more than 7.25% to 13.25 cents.

The reason? Some experts believe that Russia could choose to evade sanctions by using cryptocurrency to access funds and make transactions. 

"If the Russians decide — and they're already doing this, I'm sure — to avoid using any currency other than cryptocurrency, they can effectively avoid virtually all of the sanctions," said Ross S. Delston, an expert on anti-money laundering compliance.

As part of their sanction package against the Kremlin, Europe, and the U.S. have banned several Russian banks from the SWIFT payment system, blocking their ability to conduct international transactions. 

Following this train of thought, Ukrainian Vice Prime Minister and Minister of Digital Transformation Mykhailo Fedorov on Monday asked: “all major crypto exchanges to block addresses of Russian users.”

On Friday, the White House said it was exploring the possibility of sanctioning Russia’s digital assets and limit their access to currencies such as Bitcoin and Ethereum. 

However, blocking crypto transactions might prove challenging due to their nature. Most digital currencies are private and exist outside of the regulated financial system and global banking, reported Fox News. 

Even though crypto transactions are recorded on the blockchain, Russia has developed tools that can mask the origin of those transactions creating another obstacle for those seeking to sanction Russia’s cryptocurrency. This could allow businesses to trade with Russian entities despite the sanctions. 

Russia already has access to illegal funds through a dark web marketplace called Hydra that hides the source of digital transactions. In 2020, Hydra saw more than $1 billion in sales using cryptocurrency, reported Chainanalysis. 

Delston believes that despite Russia’s access to cryptocurrencies, it might not make a difference when it comes to completing business transactions. 

"Is a food exporter somewhere in the world going to accept cryptocurrency that fluctuates every day — every moment of every day — or are they going to want the world's reserve currency, U.S. dollars?" he asked. 

Similarly, Ari Redbord from TRM labs, a blockchain intelligence company, echoed Delston in an interview with Al Jazeera.

“It is very difficult to move large amounts of crypto and convert it to usable currency,” Redbord said. “Russia cannot use crypto to replace the hundreds of billions of dollars that could be potentially blocked or frozen.”