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Can digital currencies and crypto be banned?

Digital currencies and crypto, EU sanctions. A review by a Bitcoin mixer: mixer.money
Can digital currencies and crypto be banned?

  1. Could crypto be used to mitigate sanctions?
  2. What does “banning crypto” actually mean?
  3. Mathematics cannot be banned
  4. Channel regulation
  5. What is the point of “cracking down” on crypto?
  6. Crypto is useful and indispensable

Recently, there has been a lot of talk about the potential “crackdown” of national governments and international organizations on crypto.

Could crypto be used to mitigate sanctions?

Like many crypto-related issues, this topic is highly controversial. Some experts believe that non-governmental financial networks based on blockchain might be able to help the Russian authorities and billionaires evade sanctions. In this case, control over access to crypto is essential for the efficient implementation of economic sanctions.

This idea is partially justified. Last week, United States Senator Elizabeth Warren wrote on Twitter that “Cryptocurrencies risk undermining sanctions against Russia, allowing Putin and his cronies to evade economic pain. … U.S. financial regulators need to take this threat seriously and increase their scrutiny of digital assets.”

On Wednesday, Jerome Powell, chairman of the Federal Reserve of the United States, stated that the continuing war highlights that crypto regulation is a must. European politicians have expressed similar ideas. “We are taking measures, in particular on cryptocurrencies or crypto assets, which should not be used to circumvent the financial sanctions decided upon by the 27 EU countries,” said Bruno Le Maire, the French Minister of the Economy and Finance.

What does “banning crypto” actually mean?

Nevertheless, the concern over a potential crypto ban is caused by the vague and uncertain nature of the situation. Those who demand a crypto “crackdown” do not propose a working solution. How is it possible to crack down on the industry in the context of new surveillance and compliance requirements that regulators have been considering and implementing recently?

Moreover, the proponents of a potential crackdown do not elaborate on their ideas of increased scrutiny and new measures for the industry. These suggestions could be interpreted in various ways which results in even more doubt and uncertainty. However, these experts cannot seriously consider a complete ban of crypto.

Mathematics cannot be banned

In the early 1990s, when the USSR was in the process of disintegration, the United States was trying to limit the access of public to cryptography. Historically, ciphers were mainly developed, protected, and used by governments that needed to exchange secret messages. Numerous military organizations created paper codices and digital cryptographies to encipher military correspondence. During the Cold War, the U.S. imposed export control regulations to ensure close supervision over commercial-grade and military-grade encryption.

Everything started to change when the internet came along. Cryptography enthusiasts realized that the surveillance of computer networks was an actual risk and created codes to protect privacy. In 1991, against that backdrop, programmer Phil Zimmermann designed the public-key encryption program Pretty Good Privacy (PGP) which marked a new era in the so-called “Crypto Wars.”

Phil Zimmermann, the creator of PGP. A review by a Bitcoin mixer: mixer.money

The U.S. Customs Service claimed that the programmer had acted in violation of the Arms Export Control Act. According to that law, that cryptography was “too strong to export”. A criminal investigation was launched against Zimmermann. In the same period, the Clinton administration was trying to force businesses to intentionally include backdoors into commercial encryption devices known as “clipper chips.”

Several factors, including the widespread adoption of the PGP software and the publication of the open-source code by the MIT, have resulted in regulatory authorities abandoning their attempts. Moreover, the proponents of privacy proved that code was only mathematics, and that mathematics was speech. Therefore, limiting access to encryption algorithms would constitute a violation of the constitutional right to freedom of speech.

The Electronic Frontier Foundation, one of the most prominent groups supporting strong encryption, claimed that it was a victory in “the courts, Congress and public opinion.”

Governments did not stop trying to crack down on various industries related to encryption. In certain cases, they have tried banning facial recognition technologies, AI and private communication based on E2EE.

Cryptocurrencies are also based on encryption technologies. Basically, this is one of the reasons why Bitcoin or Ethereum cannot be directly banned.

There has already been a legal and constitutional precedent, and knowledge of these technologies is widespread. PGP was not as widely known as the Bitcoin software is.

Channel regulation

However, even if crypto is based on open-source software, the access to crypto is open, and the technology is protected by constitution, most users access cryptocurrencies via intermediaries. These intermediaries can be regulated.

The Office of Foreign Assets Control (OFAC) of the US Department of the Treasury is going to introduce new regulations that would prohibit people to deal with banned Russian organizations. Therefore, service providers and cryptocurrency exchanges will have to blacklist assets owned by certain Russian citizens.

According to Salman Banaei, the head of public policy for North America at Chainalysis, the sanctions package specifies around 100 wallet addresses.

Although some people, including Ukrainian leaders, believe that it is necessary to ban all or most Russian citizens from using crypto networks, no such regulation has been introduced so far.

Major crypto exchanges such as Kraken, Binance, and Coinbase have indicated that they are not going to ban all Russian users but will enforce sanctions against certain individuals.

Jesse Powell, the CEO of Kraken, wrote that the company “cannot freeze the accounts of our Russian clients without a legal requirement to do so.”

He added, “our mission is to bridge individual humans out of the legacy financial system and bring them into the world of crypto, where arbitrary lines on maps no longer matter, where they don’t have to worry about being caught in broad, indiscriminate wealth confiscation.”

What is the point of “cracking down” on crypto?

Although certain experts have suggested that cryptocurrencies could be used to mitigate or evade the impact of economic sanctions, so far, we have not seen it in practice.

Salman Banaei was not in the possession of exact data of actual and suspected addresses of sanctioned Russian oligarchs. However, he said that “data does show that the ability of those sanctioned wallet addresses to seek liquidity has been seriously hampered as a function of sanctions.”

The opinion that crypto is unlikely to be used for evading sanctions is based on several ideas. First of all, crypto transactions are open, non-reversible, and their nature allows investigators to reveal crimes.

For example, gold can always be melted down to cover up the traces of past owners, but all information about Bitcoin is available to anyone and is characterized by clear “entry and exit points.”

Moreover, Salman Banaei stated that, according to available information, cryptocurrency networks simply will not be able to handle the large sums that Russian organizations would actually need to process to mitigate sanctions, “given some of the structural features of cryptocurrency.”

Crypto is useful and indispensable

Responding to the criticism of crypto by Elizabeth Warren, American lawyer Jason Gottleib stated that a complete crackdown on crypto would affect not only those who it would be targeted at.

“Fundamentally, crypto frees people from corrupt, evil, or incompetent intermediaries who can cancel their money at any time. It puts financial power back into the hands of individuals, and out of the hands of the elites and banks,” Jason Gottleib said.

Crypto is based on mathematics. Only people can decide how to use it. Neither politicians, nor financial regulators, but ordinary users.

Based on an article’s from CoinDesk

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