Oith growing global sanctions against Russia following its invasion of Ukraine, the country is in trouble. But one tool may have been key to keeping the Russian economy afloat — or could have been key if used appropriately: cryptocurrency.

Cryptocurrencies such as Bitcoin, Ethereum, and other digital tokens provide an alternative monetary system outside of typical financial institutions that help keep business alive. However, some federal agencies are working hard to enforce sanctions in the cryptocurrency industry.

“The ability of the Russians to circumvent sanctions with cryptocurrency is probably grossly overstated by perhaps them and others,” FBI Director Christopher Wray said at a conference Thursday. hurry. audience before the Senate Intelligence Committee. “We are, as a community and with our partners overseas, much more effective at this than I sometimes think they appreciate.”

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While Wray has not elaborated on the exact details of these sanctions efforts so far, other cryptocurrency industry experts take his comments as an indication of how regulatory agencies are coming together. . The Treasury Department’s Office of Foreign Assets Control released guidance on Saturday stating that U.S. citizens and digital asset companies like cryptocurrency exchanges must comply with sanctions against Russia.

“Governments and regulators around the world have worked diligently to create forensic analyzes of popular blockchains,” said Nick Saponaro, CEO of cryptocurrency firm Divi Labs, “making it less difficult monitoring the movement of funds”.

Saponaro told the Washington Examiner that if, for example, a Russian oligarch invested his real money in crypto, he would probably have to do so through a centralized cryptocurrency exchange such as Binance, BitFinex or Cointrade. Companies convert real money into cryptocurrency for a fee and help customers manage and trade cryptocurrencies as they see fit.

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Although cryptocurrency exchanges don’t look like banks, they operate like banks in most cases. “These are companies that create and store digital currency on behalf of their clients,” said Stan Sater, technology and data privacy attorney at Founders Legal. “Thus, the role they play in the transaction process is similar to that of a bank or PayPal since the user does not have custody of their digital asset and actually sends an instruction to the provider of wallet to transfer the digital assets it owns to another wallet.” It also puts cryptocurrency exchanges at risk of being sanctioned, mainly because every transaction is recorded and potentially identified.

It is possible that users hide the nature of transactions with certain manipulations of data. “Highly sophisticated crypto holders are able to cover their tracks,” said Kiran Nasir Gore, senior lecturer at George Washington University School of Law. “And it’s common for blockchain users to ‘mix’ and ‘peel’ transactions to make their transactions less traceable.” However, this is not unique to cryptocurrency. “Authorities can still use traditional methods to trace assets in order to find and seize them,” Gore told the Washington Examiner.

Users could also store their digital assets outside of an exchange, such as in an external hard drive. However, their portfolio would be extremely limited. If a digital wallet is identified as being connected to a criminal or sanctioned entity, law enforcement can issue a warrant to the exchange to blacklist deposits from that address. If this address attempts to deposit cash funds through an exchange, the funds are immediately frozen and seized. Blacklisting addresses would also make it impossible for the sanctioned party to conduct peer-to-peer transactions, as the receiving party will also be blacklisted due to its proximity to the sanctioned person.

“In other words, they’re cutting off criminals’ access to exit ramps at every turn,” Saponaro concluded.

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While some specialists fears that the Russian government could use cryptocurrency to circumvent US sanctions, it is unclear to what extent it tries to do so. There are no known records on the Kremlin blockchain using cryptocurrency to evade sanctions as of March 14.

The Kremlin estimates that Russians owned $200 billion in cryptocurrency as of February 1, 2022. This massive amount of cryptocurrency acted as a “lifeline” for the average citizen as the value of the Russian ruble plummeted, complaints Coinbase CEO Brian Armstrong. This is why several cryptocurrency exchanges have stated that they will not restrict access to unsanctioned Russian citizens.

While US regulatory agencies have taken significant steps to improve their regulation of cryptocurrency, Biden’s decision to file an executive order on cryptocurrency shows that the federal government has a significant interest in further regulating the technology. – a decision that could have a significant impact on the industry, including the creation of a US government “coin” in the cryptocurrency ecosystem.