BTC statue in mettalic color

BTC tries new ‘Sanction Evader’ narrative, fails miserably (again)

BTC maxis desperate to prove their utility-free token has some functional purpose should tread carefully before promoting it as a tool for wealthy Russians to evade economic sanctions. 

After BTC failed to serve as digital currency due to its high fees, slow transaction speed and lack of merchant adoption, BTC maximalists moved the goalposts to proclaim their technology to be digital gold. For those in the know, BTC would henceforth serve as an unassailable safe haven for assets in times of uncertainty.

For a brief period, this revised narrative seemed like it might have legs. BTC began an unprecedented value pump in 2020 as the full global impact of the COVID-19 pandemic became apparent. But BTC’s value quickly fell back to earth, only to peak even higher before again losing half of its artificially gained value, with both the pumps and dumps seemingly divorced from any real-world activity.

A more recent opportunity to demonstrate BTC’s alleged safe-haven status came when Russia invaded Ukraine and global markets panicked. True to form, BTC enjoyed some brief peaks before these were followed by the inevitable valleys that wiped out its speculative gains, leaving only the reddest of the laser-eyed set still clinging to this flawed narrative.

Desperate for a new rallying cry, the BTC hype machine seized on the notion that BTC could offer Russia (and other global rogues) a financial lifeline if fresh economic sanctions were imposed by the West. Others took a somewhat more measured line, claiming that BTC could benefit both Russian and Ukrainian citizens who found their traditional banking channels disrupted by the conflict.

There have been some sizeable donations of BTC and other tokens to Ukraine, although some of the donors seemed more intent on promoting their particular crypto cause than aiding a small nation under attack from its larger neighbor. But the ability of Russia’s government and oligarchs to cushion their forced divorce from the Western economy remains a more open question.

Nyet nyet Soviet

A general consensus has emerged that the overall ‘crypto’ sector lacks the necessary liquidity to insulate Russia’s economy from the full impact of Western sanctions. There’s far less agreement on whether Putin’s cronies will be able to keep their personal economies humming through the conversion of some of their assets to tokens such as BTC, enabling them to purchase other assets abroad.

Credibility-challenged cryptocurrency exchanges such as Binance, Coinbase and Kraken have begrudgingly agreed to observe sanctions imposed on some members of Putin’s inner circle while allowing ‘ordinary’ Russians to continue trading activity. In Coinbase’s case, this flies in the face of its own user agreement, which blocks all users from sanctioned jurisdictions such as Iran, North Korea, Syria and—weirdly—Crimea, the region of Ukraine occupied and annexed by Russia in 2014.

The reluctance of crypto currency’s transactional gatekeepers to follow the exclusionary path laid down by more traditional financial channels has prompted cheers from the libertarian wing of the crypto currency community. However, it also seems to have energized government agencies into making clear the costs of such dogmatic adherence to principle, particularly if these crypto currency exchanges are found to have aided—knowingly or otherwise—Russian fat cats’ efforts to protect their ill-gotten gains.

Earlier this month, the U.S. Department of Justice announced the formation of a new interagency law enforcement program known as Task Force KleptoCapture, which targets those who help individuals/entities evade U.S. sanctions. The DoJ specifically put on notice those who assisted “efforts to use cryptocurrency to evade U.S. sanctions, launder proceeds of foreign corruption, or evade U.S. responses to Russian military aggression.” 

Last Friday, a DoJ official told reporters the Task Force would pursue any and all appropriate charges against ‘facilitators’ of these evasion efforts. The Treasury Department’s official FAQ on its Russian Harmful Foreign Activities Sanctions warns those who “process virtual currency transactions” that they “must take risk-based steps to ensure they do not engage in prohibited transactions.”

That same day, the leaders of the Group of Seven (G7) nations released a joint statement on imposing Further Economic Costs on Russia, which included ensuring that “the Russian state and elites, proxies and oligarchs cannot leverage digital assets as a means of evading or offsetting the impact of international sanctions.” The statement noted that the G7’s current sanctions “already cover crypto-assets” and member nations would be “taking measures to better detect and interdict any illicit activity.”

As the King of France uneasily observed in Shakespeare’s Henry V, “You see this chase is hotly follow’d, friends.” Should evidence emerge of shoddy compliance by ‘crypto’ gatekeepers on this front, the sector’s usual bland call for further clarity in crypto regulations won’t cut it.

Mixer? I don’t even know her!

Last Thursday, Federal Bureau of Investigation director Chris Wray told members of the U.S. Senate Select Committee on Intelligence that the Russian government’s “ability to circumvent the sanctions with cryptocurrency is probably highly overestimated on the part of maybe them and others.” Wray noted recent successes in tracking and seizing stolen BTC as proof the FBI and its overseas partners were becoming “far more effective” in this arena, thanks to “a lot of expertise in terms of tools and strategies.”

Crypto journalist Laura Shin recently reported that U.S.-based blockchains analytics outfit Chainalysis had tools that allowed it to ‘de-mix’ crypto currency that was supposedly anonymized by the Wasabi Wallet, which utilizes the CoinJoin BTC mixing service. In reality, Chainalysis exploited a known Wasabi vulnerability to track the coins in question back to their owner.

Regardless of the specifics, the fact that Chainalysis has longstanding ties to the FBI, Internal Revenue Service and other U.S. agencies should send a chill down the spines of anyone who might have attempted to use a crypto currency mixer to evade Russia-related sanctions. Because if the flood of dodgy DeFi smart contract exploits is any indication, ‘crypto’s’ general coding skillz are ripe for the picking.

Meanwhile, on Monday, Chainalysis rival Elliptic announced that it had alerted authorities to the existence of a wallet containing “significant crypto-asset holdings” that may be linked to sanctioned Russians. Elliptic co-founder Tom Robinson warned that digital currency “can and will be used for sanctions evasions, but it’s not the silver bullet” for oligarchs seeking to transmogrify all their wealth into digital form.

So here again, as with its former aspirational roles as a fluid currency and a reliable store of value, BTC has failed in its bid to be The Thing That It’s Supposed To Be Good For™. Honestly, it’s like external forces had somehow messed with the original Bitcoin protocol and rendered it incapable of anything other than fueling speculative bubbles.

This article was inspired by a recent tweet by Dr. Craig Wright, the real-life individual behind the Satoshi Nakamoto pseudonym credited with authoring the Bitcoin white paper. Wright, who supports the big-block/low-fee capabilities of Bitcoin SV—the original Bitcoin, now operating under the BSV ticker—glanced at the sad situation unfolding in Ukraine and made the following suggestion: 

If you want to see a better world, don’t think bitcoin is a system to aid oligarchs in money-laundering. Think of it as a system that will promote new opportunities because of the low transaction fees that can occur. 

It’s doubtful that the leading lights of the Crypto Crime Cartel will heed those wise words but hope—like the kind sustaining Ukraine’s underdog struggle against Putin’s oppression—springs eternal. Then again, if global pandemics and bloody wars of conquest are your technology’s only paths to glory, maybe the words BTC really needs to hear are enough already

Follow CoinGeek’s Crypto Crime Cartel series, which delves into the stream of groups—a from BitMEX to BinanceBitcoin.comBlockstreamShapeShiftCoinbaseRipple, EthereumFTX and Tether—who have co-opted the digital asset revolution and turned the industry into a minefield for naïve (and even experienced) players in the market.

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