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Estonia's Calls for Cryptocurrency Restrictions

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Kaja Kallas is a recent addition in the growing line of public officials concerned about Russia utilizing the censorship-resistant feature of cryptocurrencies to evade sanctions.
Ukraine’s Vice Prime Minister, Mikhailo Federov, was the first to call for a ban of Russian users on crypto exchanges. “It’s crucial to freeze not only the addresses linked to Russian and Belarusian politicians, but also to sabotage ordinary users,” Federov tweeted.

Following Ukraine’s tweet, concerns were shortly echoed by others, including Frances Finance Minister, Bruno le Maire, and members from Japan’s regulatory financial services agency.

Related to the sanctions put forth against Russia is a US published report from October of 2021. The report mentions that cryptocurrencies could have the ability to undermine sanctions.

Can Crypto Be Used to Evade Sanctions?

There are a few ways that cryptocurrencies can be used to evade sanctions on the individual levels, however, it is not entirely obvious that Russia has done so at the state level.

According to Chainalysis, individuals and groups based in Russia enjoyed 74% of profits from the ransomware industry in 2021. For context, ransomware is a category of malware that blocks access to a computer or network until a ransom is paid in cryptocurrency making it an unethical roundabout way to acquire cryptocurrency.

President Putin has previously said that Russia has a competitive advantage in Bitcoin mining, so that could be an option in obtaining Non-KYC Bitcoin at the state level.

Russia could also still turn towards non-compliant exchanges to acquire cryptocurrencies. “There are instances where exchange services were complicit in enabling Russian-based criminals to launder large amounts of money”, said David Carlisle, Director of Policy and Regulatory Affairs at blockchain analytics firm Elliptic.

Although the rails exist to avoid sanctions, the Ruble-denominated crypto activity sputtered out to a low of $34.1 million on March 3rd. For reference, the Ruble's most recent crypto-activity peak was at the tune of $158 million on May 20th, 2021. 

A challenge the state would face is that crypto adoption is still too small according to Changpeng Zhao founder of Binance. “There is probably about 3% of the global population with some kind of crypto exposure, and of those most have a small percentage of their net worth in crypto. There is probably only less than 0.3% of the global net worth in crypto today.” Thus liquidity could be an issue if Russia were to begin participating at the state level.  

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