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DOES an industrial-sized dog whistle go off when advocates boast about cryptocurrency’s ability to evade US government sanctions?
Back in March, a founder of Tornado Cash – a so-called “mixer” service that masks cryptocurrency transactions by mixing them with others – told Bloomberg it would be “technically impossible” for sanctions to be enforced against decentralised protocols.
Surprise: Tornado has now been sanctioned by the US Treasury’s Office of Foreign Assets Control, partly because of its use by hackers said to be linked to North Korean money laundering.
With Tornado down 95% from its all-time high and its source code removed from Microsoft Corp’s GitHub, it’s the latest blow to the “no sanctions yay” theory of crypto – the three words used by former Ethereum Foundation scientist Virgil Griffith in 2019 when he told a blockchain conference in North Korea how to dodge sanctions by converting cash into crypto, costly advice that resulted in a guilty plea and a 63-month federal prison sentence.In terms of technology, it shows that even the most decentralised service can’t avoid law enforcement.
Exchanges are under pressure to monitor links to regular currencies, as are other service providers, and pseudonymous blockchains can be pored over for suspicious transactions – such as the gains of North Korean cybercriminals that transited through Tornado.
As Bloomberg’s Emily Nicolle notes, the crypto industry hasn’t been able to build all its infrastructure yet.
Geopolitically, crypto is also suffering – not surging – amid an economic Cold War.,
After the Covid-19 pandemic and Russia’s invasion of Ukraine, Washington has been flexing its financial muscles, even amid angst about the kind of blowback that overreach or alternative currencies might bring.
Keeping crypto in check fits with the history of US regulation of encrypted tech, like the e-mail mixers of the 1990s, but is also key for US soft power in wartime.
Ironically, even opponents of a dollar-based global economy have been ambivalent – at best – about crypto.
For the likes of Russia and Iran, global pariahs that are also big energy exporters, crypto’s threats undermine its potential.
While in theory they might be able to use crypto to facilitate trade and bypass US monitoring, that’s outweighed by the prospect of capital flight, instability and price volatility.
Moscow has veered between banning and encouraging digital assets, doubtless recognising that they can help sanctioned elites on some level.
But the ruble still carries muscle – as recent arm-wrestling with the European Union over gas payments demonstrated.