I was rambling a lot on Twitter about why Russia couldn’t use cryptocurrency to evade international sanctions. So James Palmer pinged me on Tuesday, I put a piece together by Wednesday evening, and it’s just gone live. [Foreign Policy]
The reason is simple and obvious: the actual dollars don’t exist in the crypto trading system for Russia, a $1.5 trillion economy, to replace its foreign exchange via crypto without anyone noticing.
North Korea managed to evade sanctions with crypto — by laborious chain-hopping over many months, for maybe tens of millions of dollars. And North Korea was busted because it was all visible on the various blockchains.
Sanctioned individuals may be able to launder some cash through, on the order of millions. Crypto laundering works like any other money laundering — shell companies, front men, complaisant banks. You’ll catch them the same way you catch any other kind of money laundering. If they’re dumb enough to do crimes on a permanent public ledger, all the better.
There was also a silly story in Reuters claiming that Tether was being used to get money out of Russia — which turned out to be a spike to $33 million in the total volume in one day on the USDT/RUB pair on Binance. Perhaps one guy got his rubles out. That story was really a nothingburger, but I noted it because it got some media play.
A man walks past a currency exchange office in central Moscow on 28 February, by Alexander Nemenov, AFP.
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My view on the question, “Why doesn’t Russia just use crypto,” is that people aren’t wondering why don’t Russians just launder their money through crypto. They’re wondering, “Why doesn’t Russia just switch to using crypto currency and magically avoid international sanctions?” Honestly I think most people believe cryptocurrency is literally monopoly money that can just be minted and has value. To them that makes just as much sense as a jpeg selling for millions of dollars. They wonder why Russia isn’t switching its entire economy over to crypto because they literally think crypto is magic.
Yep. I have been thinking about responding to tweets like those by asking whether they understand what tens of millions of new users would do to transaction times and costs, but then I realised it would be like trying to discuss chess rules with a pigeon.
The other fascinating discourse, although unrelated to crypto, is “Russia is immune to Western sanctions, because they can trade with China instead”. Fascinating because the logic is completely equivalent to UK Brexiters arguing that the entire UK economy can simply pivot to trading with “the Pacific” or something, as if transport routes, suppliers, and customers are 100% instantly fungible.