sanctions. Unquestionably a buzzword in cryptocurrency circles – alongside censorship, regulation and centralization. This week proved the size of the problem – and the growing interest of law enforcement in cryptocurrencies. The United States on Wednesday announced the withdrawal of a Russian-Venezuelan network that used Tether (USDT) to move money illegally. International sanctions were aggressively lifted against Russia after the invasion of Ukraine in February. This quickly brought up the topic of cryptocurrency and its potential ability to circumvent these sanctions.
Table of Contents
Censorship resistance is a pillar of cryptocurrency
On the one hand, resistance to censorship is high. In fact, it is one of the backbones of cryptocurrency. Through this alluring quality of decentralization, individuals gain the ability to take control of their wealth and avoid the influence of governments and other central entities. This decentralization and resistance to censorship offers all sorts of benefits. Think of those living under unreliable regimes, now with an avenue to gain some control over wealth. Citizens seeing mass inflation through incompetent governments, who can now simply buy stablecoins with minimal effort, storing their value in dollars. These advantages are more or less recognized by everyone. For me, they present some of the reasons why I am so fascinated by this strange little industry. It helps break financial privilege, allowing citizens of developing nations the chance to preserve their wealth. Sure, bitcoin is incredibly volatile and currently totally unsuitable as a store of value, but cryptocurrency also extends to stablecoins, less volatile coins – there are a number of options.
Is decentralization also a downside?
Many criticize Tether for being centralized. Oh – you are subject to the whims of the US government, they argue. And they are right. Take a look at last month’s events with Tornado Cash, the cash mixer on Ethereum, to see this. The government can order Tether to freeze wallets whenever it wants, and Tether must comply. They are a regulated company – and that is how regulated companies are required to act. This is why I argued for so long about how centralized Ethereum is. The entire ecosystem is as dependent on centralized stables as Tether and Circle. If the capital flowing through the system is centralized and subject to censorship, then how can Ethereum – or DeFi in general – be decentralized? But we also need to face the downsides of decentralization. As magical as it is – and for every door it opens – there are also very significant downsides. The ability of actors to circumvent international sanctions is one of them. This is an ominous but very real reality – decentralized cryptocurrencies help with this.
What happened this week?
This week’s announcement – that the US Department of Justice was bringing charges against five Russians and two Venezuelans accused of running a global network of money laundering and trading with sanctioned companies – highlights just how real this problem is. The Justice Department announced that the accused facilitated the trade of hundreds of millions of barrels of oil that were later shipped to Russian and Chinese buyers. In addition, members of the group were accused of smuggling military technology into Russia. As Russia continues to terrorize Ukraine, this paints a grim picture of cryptocurrency aiding the war effort. According to The Block, one of the accused, Russian Yury Orekhov, reportedly told an accomplice “no worries, no stress. As soon as we start docking, we will transfer immediately. USDT works fast like SMS.” Pro-Russian paramilitary groups have also used cryptocurrencies to finance their activities. That said, Ukraine has significantly leveraged the cryptocurrency donation angle further – raising over $100 million following an appeal from its vice president on Twitter. And that’s through a centralized cryptocurrency like Tether, which means potential concerns expand to all cryptocurrencies rather than just decentralized currencies. For the latter, however, law enforcement’s means of curbing illegal activity are greatly reduced – an incredible blessing, but also a daunting prospect.
It is worth it?
Like many things, there are good and bad things here. It’s about whether the positives outweigh the negatives. Does the power of decentralization and all the good it can offer the world outweigh the potential for bad actors to transact more freely? I believe so, but we need to be careful how we do it, without ignoring the very sinister things that happen on the fringes of this industry. Law enforcement also has a role to play, of course, and developments this week show that they are starting to do that more and more. To top it off, decentralization is amazing. But it’s not perfect – and that needs to be acknowledged. I hope that good can continue to overcome evil. But the next time you’re lyrical about a utopian future built on a decentralized structure, consider the fact that there are downsides too.
