Russia has many cryptocurrency tools at its disposal to circumvent sanctions that are sure to be overcome after the Ukraine invasion.

When Russia invaded Crimea in 2014, it was hit by international sanctions that economists I estimated costs Russia $50 billion a year. However, the global market for cryptocurrencies and other digital assets has developed significantly since then. Provide Russia with several alternative ways to subvert sanctions.

Sanctions are effective as a diplomatic tool because of the global financial system, especially those enacted by the United States, which controls the world’s dollar reserve currency. Companies and individuals are blacklisted, and anyone caught trading with them must face a hefty penalty. These are effectively enacted by banks whose anti-money laundering laws require them to block transactions with sanctioned entities.

However, cryptocurrencies now allow entities to effectively bypass these gatekeepers. While most cryptocurrency exchange platforms follow similar “know your customer” rules, they are rarely as exhaustive as regulated financial institutions.

As cryptocurrencies developed in the following years, Russia now has a number of cryptocurrency-related tools at its disposal. For example, the Russian government is developing its own central bank digital currency (CBDC). With the so-called digital ruble, Russia hopes to trade directly with any other countries willing to accept it.

Furthermore, Russian hackers are likely to step up the ransomware attacks they have become globally notorious for to help make up for lost revenue from sanctions. Iran and North Korea have already set precedents for these types of workarounds. The latter having used ransomware before to steal cryptocurrencies to fund their nuclear program.

Cryptocurrencies also underpin dark web marketplaces such as Hydra, which handled over $1 billion in sales in 2020, through which illegal funds continue to flow into Russia. While the platform’s stringent conditions and technology make it difficult for investigators to track transactions, it currently lacks the scale to handle the transaction volume required at a national level. However, money laundering techniques such as “nesting” can help ease the need.

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