“How was I supposed to know that something wasn’t right here?”
– Baby One More Time, Britney Spears
Recently, there have been many reports of Russia getting around sanctions by using crypto, such as:
At their core, they all allege that individuals and entities are moving money, or things of value like money, outside of Russia using the crypto network, allowing a way to get around the sanctions that prohibit much of the Russian economy from operating and paying normally.
These allegations have led to the usual calls for increased regulation and potentially banning parts of crypto, given its ability to facilitate such transactions. In fact, this has been a fear since bitcoin was created in 2009. It offered a way to move things of value relatively instantaneously, finally and without regulation, which was not domiciled or regulated in any part of the world. In fact, that has been much of the draw of crypto.
So, let’s say that first, the problem has to be looked at with an element of scale and trade-offs, and not just at the downside. Virtually every technology can be used for nefarious purposes. Phones have been used to communicate and coordinate criminal activities since almost they were invented. Cars have been used to transport criminals and contraband since they were invented. And, even something as simple as US dollar bills is used every day to pay for all sort of illegal transactions (drugs, contraband), illegal weapons and to circumvent controls (such as reporting income for tax purposes).
Yet, we don’t hear the outcry to ban phones, or cars or paper money (though there is a bit on paper money…for another blog). There is no outcry because most people accept, pretty strongly, that the positive use cases far outweigh the negative ones, and the negative use cases can be properly managed, or simply accepted as what we get for a new(ish) technology that has many positives.
So, let’s unpack crypto, with this slightly more advanced lens. The downsides seem to be overblown. While there is undoubtedly some illegal activity and sanctions evading going on, simply the liquidity of Rubles to crypto and then finding counter-parties willing to exchange the crypto to dollars from unknown sources will exempt most major exchanges, creating a further liquidity problem. I would expect that paper money and other sanctions-busting methods like bartering are in fact more important that crypto. Also, crypto leaves quite the trail to track transactions, allowing for look at who has been taking in crypto that originated from a Rubles-crypto exchange — making it potentially one of the easiest trails to track.
It’s also worth noting that sanctions have a moral side to them. While many people may view sanctions evading as bad, there are also views that systems which help people move their money outside of evil regimes, are in fact a net good and remove power from that evil regime — so even the concept of compliance can be held up with a moral light.
With all this, there is undoubtedly some crypto problems with sanctions — and major exchanges should be looked at to make sure that they are not facilitating this, which they probably already are, and this problem can be managed much better than for many other technologies with regards to sanctions.