Washington is studying a new area to impose more possible sanctions against Russia: digital currencies.
Targeting country access to CryptocurrencySuch as Bitcoin and EtherSanctions policy will take you into uncharted territory. Blocking transactions can be difficult, since digital currencies are inherently private, designed to exist without borders and mostly outside the government-regulated financial system.
The Biden administration The Wall Street Journal reported Friday, citing an administration official, that the region is in the early stages of exploring the region, with the aim of disrupting economic activity in the country. The official said the sanctions on cryptocurrency activities in Russia should be crafted in such a way that they do not devastate the broader cryptocurrency market, which could make enforcement difficult.
The steps that regulators have taken in recent years to more closely monitor cryptocurrency transactions could give governments leverage, for example, by requiring crypto exchanges and brokerages to block transactions in certain countries or with some government-issued currencies, such as the ruble.
Marlon Pinto, director of investigations at another London-based risk advisory firm, said cryptocurrencies make up a larger part of the Russian financial system than most other countries due to mistrust in their banking system. A Russian government report estimates that there are more than 12 million cryptocurrency wallets, where digital assets are stored, opened by Russian citizens and the amount of funds is about 2 trillion rubles, equivalent to about 23.9 billion dollars.
Russia is the third largest country in bitcoin mining, which is an energy-intensive and mathematically complex process by which new bitcoins are harvested, according to August 2021 data from the University of Cambridge.
The Russian government has a hot and cold attitude towards cryptocurrencies. The country’s central bank proposed a ban on cryptocurrency operations last month, calling for a ban on the issuance and operations of cryptocurrencies, a halt to banks investing in them, and a ban on cryptocurrency exchanges for government-backed currencies. The central bank has also called for a ban on cryptocurrency mining.
However, President Vladimir Putin said in January that Russia has “certain competitive advantages” with it in terms of surplus electricity and a trained workforce. The Russian Ministry of Finance has submitted draft regulations to the government that would allow residents to invest in cryptocurrency through licensed entities despite limiting the amount of rubles they can invest. The ongoing feud prompted Mr. Putin to publicly call for a compromise last month.
One of the motivations for targeting cryptocurrencies is that they can be used to get around other sanctions that focus on the traditional banking and payment system.
Iran, which faces severe US sanctions that have limited its access to global financial markets, has used crypto-mining to get around the sanctions, according to analytics firm Elliptic.
Like Russia, Iran is a major oil producer, which allows it to use this fuel to power bitcoin mining and reap digital currency in return, and use it to buy imports. This allows Iran to avoid sanctions on payments through Iranian financial institutions.
Analysts say enacting penalties for cryptocurrencies will be difficult. Major cryptocurrency exchanges work with regulators who request information about customers and suspicious transactions. But peer-to-peer cryptocurrency transactions that lack a central broker are growing in popularity.
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