The West has decided to cut Russia off from the Swift international financial network because of the war in Ukraine. Are Bitcoin and Co. a way out for Moscow to defy sanctions?
German Chancellor Olaf Scholz speaks of a “turning point in time,” referring to the Russian army’s invasion of Ukraine. Over the weekend, Scholz also cleared the way for Russia’s internationally demanded exclusion from Swift, the main international financial network. The measure is considered the most severe sanction to hit President Vladimir Putin’s country hard economically. Without Swift, Russian banks can at best process international transactions in a roundabout way. Almost automatically, this leaves Bitcoin (BTC) and other cryptocurrencies as a possibility for Russia to continue to trade financially internationally without Swift.
Swift has been in existence since 1973 and has only seen entire countries denied access twice since then, namely North Korea and Iran. Both countries are said to have responded by increasing their activities in the crypto sector. For example, North Korea is said to be actively mining Bitcoin and also mining Monero (XMR). In addition, state hackers are in operation for North Korea to steal from crypto exchanges, the UN finds. In the case of Russia, for example, analysts at Chainalysis have recently already comprehensively outlined how Russian hackers are responsible for much of the criminal activity associated with cryptocurrencies. The typical method here is ransomware, which is used to blackmail companies and force them to pay “ransoms” in crypto. 400 million US dollars are said to have flowed to Russian hackers in this way in 2021.
Moscow as the headquarters for illegal crypto businesses
Chainalysis has pinpointed Moscow as the place where Russian cybercriminals set up shop. According to the report, large revenues are also generated with business on the darknet. Offices of sleazy businessmen and hackers are often located in the “Federatsiya” skyscraper, which is an icon in itself as the tallest of its kind in Moscow. The fact that at least half a dozen suspicious companies reside there at any given time suggests acquiescence by the political leadership. Shortly before the invasion of Ukraine, Putin had still spoken of “qualified personnel” in Russia for the crypto industry and emphasized cheap energy when talking about Bitcoin mining. So the warmonger seems well informed about how cryptocurrencies work and what resources Russia has for Bitcoin and Co.
So far, however, there is a lack of evidence that official Russia is actually handling crypto to conduct international trade. North Korea is said to be using crypto to finance its nuclear program, and in Iran cryptocurrencies are often accepted as a means of payment in private business. Could the Western community of states put a stop to such uses? Basically, as with widely used altcoins, the network behind Bitcoin is decentralized and autonomously organized. It is therefore technologically impossible to cut off a country from it. The situation only changes when crypto exchanges, wallet providers and other service providers come into play. They can deny Russian customers their services. The U.S. Treasury Department also made explicit reference to cryptocurrencies in its 2021 Sanctions Report and is betting that concerted action can take hold. This is because payment flows in the blockchain are publicly documented and can usually be attributed. If media, financial institutions and other market participants are then sensitized, the implementation of painful sanctions is possible even in the crypto sector, the US Treasury believes.
Conclusion: Putin’s regime also under scrutiny because of cryptocurrencies
In recent days, it has emerged that the Western alliance is willing to isolate Russia financially. While this will also have consequences for the global economy, it seems there is no alternative as the toughest economic sanction against Russia, a nation at war. Putin’s regime in Moscow could try to circumvent consequences of the Swift exclusion through transactions in crypto. But this would not go unnoticed and would probably be outlawed by the West and at least made more difficult.
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