The cryptocurrency alone will not allow Russia to circumvent a series of sanctions aimed at punishing Moscow for invading Ukraine, cryptocurrency analysts told Al Jazeera.
The United States, the United Kingdom, the European Union and Canada announced new sanctions on Monday, this time against Russia’s central bank and the National Welfare Fund. The US Treasury Department has said it is limiting Russian President Vladimir Putin’s ability to use $ 630 billion in the country’s foreign reserves.
The move came just a day after the United States and its allies cut off some Russian banks from SWIFT (Global Interbank Financial Telecommunications Society), a secure messaging network used for trillions of dollars in transactions.
Russia’s economy has already shaken on Monday. The roll fell to its lowest level ever, the central bank raised its key interest rate to 20 percent and the stock market remained closed.
The imposition of sanctions requires the ability to track transactions – usually through the banking system. Both Iran and North Korea have used cryptocurrencies that operate outside the financial system to circumvent sanctions.
“Crypto can be used to avoid sanctions and hide wealth,” Roman Bieda, head of fraud investigations at Coinfirm, a blockchain risk management platform, told Al Jazeera.
However, crypto experts said Al Jazeera’s case in Russia was different, with less room for movement due to the scale of the economic blow and the limited adoption of digital currencies.
Replacement of hundreds of billions of dollars
Unlike North Korea, Venezuela and Iran, Russia has been deeply rooted in the global financial system for decades, Ari Redboard of TRM labs, a blockchain intelligence company, told Al Jazeera. Eighty percent of its daily foreign exchange transactions and half of its international trade are in dollars.
“It’s very difficult to move large amounts of cryptocurrency and convert it into usable currency,” Redboard said. “Russia cannot use cryptocurrency to replace hundreds of billions of dollars that could potentially be blocked or frozen.
Measures have also been taken to stop the avoidance of sanctions through cryptocurrency. In a blockchain register – where cryptocurrency exchanges are published – each transaction and the address associated with it are visible to the public.
Bieda of Coinfirm told Al Jazeera that while sanctioning governments cannot know who owns the address sending the cryptocurrency, they can see the volume of the flow – in other words, the amount of money being moved. Once a suspicious address is flagged, these tools can be monitored.
Extracting cryptocurrencies with excess energy is an option, but not enough
Oil and gas are one of the sectors of the Russian economy that has not been subject to sanctions, although companies, including Shell and BP, have announced they are withdrawing from the country.
Russia is one of the world’s largest oil exporters, with 25 percent of European oil coming from Russia, according to Rystad Energy, an Oslo-based research firm. The country also supplies about 40 percent of Europe’s natural gas.
If future sanctions are really targeted at the energy sector, Moscow could emulate Tehran by using excess energy or computing power to generate cryptocurrency, Tom Robinson, co-founder of Elliptic, a London-based blockchain analysis provider, told Al Jazeera.
“Cryptocurrency mining allows them to monetize their energy reserves on the world market without having to relocate them,” Robinson said.
But it will probably be just a drop in the bucket for a great power, an exporter of crude oil and gas like Russia.
Sanctions against oil and gas seem unlikely at the moment, Rystad Oil analyst Louise Dixon told Al Jazeera.
“Interruption of supplies of up to 5 million barrels a day of Russian oil would not only deepen the already fragile energy crisis worldwide, but could be interpreted by Russia as an act of war,” she said.
Reducing the global role of the dollar
The US Treasury Department recently warned that digital currencies and alternative payment platforms could undermine the effectiveness of US sanctions.
According to blockchain data platform Chainalysis, approximately 74 percent of ransomware revenue in 2021 – more than $ 400 million in cryptocurrency – has gone to entities “most likely to be connected to Russia in some way.”
New technologies have allowed malicious participants to keep and transfer money outside the traditional dollar-based financial system, according to the Ministry of Finance, while enabling “opponents seeking to build new financial and payment systems designed to reduce the global role of dollars. “
Although sanctions against Russia are intended to put pressure on Moscow, they could speed up the arrival of the new financial order warned by the United States, Ryan Selkis, founder of crypto research firm Messari, told Al Jazeera.
“Russia’s expulsion from SWIFT and the loss of access to its reserves will accelerate the dedollarization of trade,” Selkis said. “I don’t think the West believes the dollar will ever be displaced.”