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Bitcoin:
The crypto boom comes at the right time in Russia after its exclusion from Swift
Photo: PHILIPPE LOPEZ/ AFP
Quickly exchange dollar assets for cryptocurrency and secure them in your own wallet before the West freezes your account: In the past few days, many rich Russians may have at least toyed with the idea of giving part of their assets to the blockchain system rather than the international banking system to entrust.
Anyone who parks their money in cryptocurrency in their own wallet withdraws it from the usual payment transactions - and thus also from the sanctions of the West.
The story alone that Russian billionaires could now increasingly use crypto money as a safe haven currency was enough to catapult the price of Bitcoin and Co by around 20 percent within a few hours.
It is part of the nature of the cryptocurrency Bitcoin that it escapes the control of banks and states.
Transactions that take place on blockchain technology do not require an intermediary.
This also makes cryptocurrencies attractive to hackers and money launderers.
Bitcoin is the favorite currency of cybercriminals who paralyze their victims' IT systems and demand ransoms.
So why not use bitcoin as a safe haven currency when the dollar is no longer available due to sanctions?
Suitable as a money parking lot for rich Russians
For individuals, it makes sense to switch to the crypto market as a wealth parking lot.
For the state of Russia, however, things look more complicated: the Russian central bank is unlikely to swap its multi-billion dollar foreign exchange reserves for a largely unregulated cryptocurrency.
In order to be able to trade with crypto money and continue doing business, you need a business partner who also accepts this currency: This applies to private individuals and companies as well as to states.
Building a crypto infrastructure takes time
"Russia first has to build the necessary infrastructure to be able to use Bitcoin as a general means of payment," explains Philipp Sandner, an economist at the Frankfurt School of Finance, in an interview with manager magazin.
"It's more like 12 months than 6 months."
In its current emergency situation, Russia would thus follow the example of El Salvador, which introduced Bitcoin as an official means of payment last year.
Similar to a Paypal app, the Russian government would have to provide all citizens and companies with a gateway through which payment transactions via Bitcoin would be processed, explains Sander.
Nevertheless, the basic problem remains: Bitcoin also only works in international payment transactions if the business partner also accepts the trading currency.
And after the latest sanctions, it's hard to imagine Apple or Alphabet subsidiary Google adding such a Russian payment app to their app stores.
Easing sanctions: The crypto boom is Russia at the right time
Nevertheless, economic sanctions such as Russia's exclusion from the Swift payment system only work if payments are actually processed through state-controlled banks.
The larger the crypto market becomes and the more Bitcoin and Co establish themselves as a means of payment, the more difficult it becomes to achieve the desired effect with the sanctions.
US sanctions are powerful as long as the dollar is the world reserve currency.
If dollar payments can be replaced by crypto payments, the payment restrictions lose their effect.
Ransomware Attacks: Russian Hackers Lead the World
With the boom in cryptocurrencies, Russia has a means of at least partially softening the sanctions of the West.
Especially since Russia has a high level of expertise in obscuring the paths of cryptocurrency, as the recent hacker and ransomware attacks from Russia show.
The US and Europe want to cut off Russia from foreign capital after the attack on Ukraine.
However, if Russia finds business partners who engage in crypto transactions, Russia should have an easy time bypassing the control bodies.
"Russia has had enough time to prepare for this scenario - and they will have taken their precautions," money laundering expert Michael Parker confirmed to the "New York Times".
In order to control money flows internationally, banks act as the eyes and ears of the states.
However, the cryptocurrency explosion throws dust in their eyes, according to Parker.
Banks are obliged to verify the identity of their customers according to the motto "Know your customer" (KYC) and to disclose them if necessary.
Publicly licensed crypto exchanges are, in theory, required to do so as well.
In practice, however, it is likely to be much more difficult to follow the trail of money on these trading and exchange platforms.
Russia and China seek non-dollar payments
As early as October 2021, the US Treasury Department indicated that cryptocurrencies were a threat to any planned financial sanctions program.
Sanctioned states like Russia only have to find ways and means of bypassing the US dollar in their money and payment flows.
Russia's efforts to introduce a digital ruble are also moving in this direction.
For example, in trade with China, digital rubles and digital yuan could soon be used as a means of payment - without these currencies ever having to be exchanged for dollars.
Looking for money: ransomware attacks are likely to increase
According to the New York Times, ransomware attacks by Russian hackers are likely to increase in the coming weeks.
Cryptocurrency ransom or theft of cryptocurrencies is a lucrative business: It could help to find new sources of money to offset losses from international sanctions.
In theory, transactions in blockchain technology are transparent and can be traced.
But Russian hackers are experienced enough to obfuscate the path of the money - be it through the use of exchange networks or through the use of specially developed tools.
This technology could also be offered to Russia by companies that want to trade with Russia despite the sanctions and at the same time want to stay under the radar of financial regulators.
Russia is not breaking new ground with this.
Iran and North Korea had also tried to mitigate the effects of international sanctions with crypto deals.
According to a UN investigation, North Korea has also used ransomware to steal cryptocurrency to fund part of its nuclear program.
Russia's most important trading partner is China: both in terms of imports and exports.
China's President Xi Jinping recently confirmed that relations between the two countries have "no restrictions".
Both states are working on their own digital currencies.
This is not good news for the western alliance, which wants to build up pressure through economic sanctions.