Russian Sanctions and Cryptocurrencies; What To Do
Cryptocurrencies are a delicate subject, imagined as something that would constitute a peer-to-peer, entirely free market. However, in situations like the Ukraine war, the course of action becomes muddled. On one hand, cryptocurrencies can go under sanctions, thus undermining government orders. On the other, government control and free markets don’t go hand in hand.
This dilemma has birthed two possible courses of action. One is to limit crypto transfers to Russia, thus remaining true to sanctions. The other is to keep cryptocurrencies free regardless of the sanctions, staying true to their own philosophy. Today, we’ll take a look at an example of each.
Japan Tightens Cryptocurrency Control
Our first story comes from Japan, which opted to make crypto control stricter. Of course, its goal is to avoid transactions that would go against the sanctions in Russia.
The new measure is essentially submitting cryptocurrencies to centralized control. The rules apply to exchanges that do business in Japan and not individual crypto users themselves. However, the end result is largely the same in either case.
The exchanges the change affects will need to check the recipients of crypto transfers Japanese crypto users initiate. If the person receiving the money is subject to financial sanctions, the transfer can’t go through.
Country officials feel like cryptocurrencies offer a sidestep to some specific sanctions. One of them is Russia’s ban from the global SWIFT payment system, making money transfers much more difficult. Cryptocurrencies offer a simple workaround, and anyone that’s even moderately tech-savvy can send and receive money.
According to Fumio Kishida, Japan’s Prime Minister, the amendment to the law will prompt government preparation on Wednesday. He predicts that the changes will be fully cemented in mid-June. The government has already requested that cryptocurrency exchanges report suspicious transactions to financial authorities. The request, which came early in March, isn’t yet legally binding.
As far as the current law goes, Japan has rigorous control over bank transactions. Banks must report attempts to transfer money to recipients that are under sanctions. If the new law goes through, the same will apply to crypto, eliminating decentralization for Japanese citizens. The change may also prompt exchanges to stop servicing the country rather than complying.
Russians Using Cryptocurrencies to Flee
On the other side of the coin, we have Russians who are using cryptocurrencies to flee and survive. Now that the rouble has been decimated, the only choice for a lot of Russians is to rely on cryptocurrencies. It also helps them avoid government prosecution, as the anonymous nature helps them avoid scrutiny.
One such example is a 37-year-old Russian programmer who decided to flee. With his wife, he packed his bags and escaped to Georgia, fearing the political climate in his home country. They left all their belongings to relatives, converting the cash they could into cryptocurrencies. That helped them escape the rouble’s plummet and keep a portion of their life savings.
For many Russians, cryptocurrencies have become a last resort. They can’t get their hands on foreign currency, and the domestic one is devaluing at a rapid rate. Many of them are against Putin’s regime and plan to leave when they can.
Western lawmakers seem to have little sympathy for them. They are trying to urge crypto exchanges to limit the possibilities of such transactions.
Some exchanges, like Coinbase, have agreed partially. It banned 25,000 addresses that had links to Russian entities or were possibly involved in illegal activities. However, the common sentiment shared by other exchanges such as Binance and FTX is that an indiscriminate ban on Russians won’t happen. The refusal to yield under pressure is partially because of empathy and partially because exchanges are aware it would degrade their image among crypto traders.