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This article was contributed by Sadie Williamson, founder of Williamson Fintech Consulting.
The war between Russia and Ukraine has put cryptocurrencies squarely in the public spotlight yet again. Russia’s invasion of Ukraine has led to the former facing multiple sanctions from much of the western world. As the Russian Ruble continues to descend at an astonishing rate, Russian civilians and organizations are turning towards cryptocurrency as a haven in this time of crisis.
Since the invasion began, the Ruble (RUB) has lost more than half of its market value. On top of it, Russia has been hit with multiple economic sanctions, including its removal from the global payment system SWIFT. Prominent Russian citizens and organizations have found themselves on the US Sanctions List, effectively prohibiting American companies from engaging in any form of business activity with them.
To that extent, Coinbase, one of the largest US-based crypto exchanges, has now blocked over 25,000 crypto wallets belonging to Russian individuals and entities. Per Coinbase’s official announcement dated March 7th, 2022, the platform implemented a multi-layered, global sanctions program to support government authorities in deterring unlawful aggression and promoting national security. This effort involves blockchain analytics technology, which flags problematic registrations and anticipates potential threats.
Commenting on the exchange’s latest efforts, Paul Grewal, Coinbase’s chief legal officer, argued that fiat currency remains the most convenient avenue for money laundering, namely through traditional financial institutions. Furthermore, he was quick to highlight how crypto, and its innate transparency through public ledgers, can be more effective for establishing sanctions compliance. Noting how difficult it would be to make big block transfers of capital through the blockchain without being tracked, he advances the notion that cryptocurrency can be a more effective sanctions enforcement mechanism than fiat-based measures.
In the meantime, the Coinbase team clarified that these blocked addresses have been engaging in illicit activities, many of which were identified through the platform’s own protective investigations. In addition to this, Coinbase has also shared these addresses with the US government to underline their commitment and support.
Only three days ago, on March 4, 2022, Coinbase’s CEO Brian Armstrong posted a string of tweets, one of which read, “Some ordinary Russians are using crypto as a lifeline now that their currency has collapsed. Many of them likely oppose what their country is doing, and a ban would hurt them, too. That said, if the US government decides to impose a ban, we will of course follow those laws.”
In the same thread, Armstrong added, “Coinbase isn’t preemptively banning all Russians from using the platform. We believe everyone deserves access to basic financial services unless the law says otherwise.” The string of tweets clearly indicated Coinbase’s stance on the sanctions. Accordingly, the move to block more than 25,000 accounts wasn’t unexpected but nevertheless raised several important questions.
Even though Coinbase has clarified that all of the blocked wallets are linked with sanctioned individuals and entities and not ordinary Russian users, the sudden decision to block thousands of wallets in the blink of an eye is a stark reminder that cryptocurrencies may be decentralized, but that the exchanges managing assets aren’t necessarily.
For a centralized exchange, decision-making power is retained by only a handful of individuals. And Coinbase’s CEO Brian Armstrong has tried his best to balance between aligning with the sanctions and explaining how crypto can’t be used to evade sanctions, albeit his final action. In the same series of tweets from March 4th, Armstrong explained his view on the ongoing questions related to using crypto to avoid sanctions and reiterated that Coinbase is bound to comply with the US regulatory landscape as an American company.
Sadie Williamson is the founder of Williamson Fintech Consulting.