Economic History Case Studies: Cryptocurrencies Do Not Evade Sanctions

Unlike the Work-Standard, which I had intended to be capable of functioning in wartime, Cryptocurrency is an entirely different matter altogether. My arguments from last year stipulated that the fundamental flaw of conventional Cryptocurrencies was that they needed steady sources of electrical power to sustain the Blockchain. Without electricity, the Blockchain cannot create any new sources of Kapital for anyone involved. A similar conclusion can also be made regarding its dependency on powerful computers to oversee the Blockchain and decent Internet Speeds for the transactions between different users. In a wartime scenario, any major sources of electrical power will become military targets because of its potential to facilitate the actual war effort.

The destruction of facilities creating electrical power do not necessarily have to come from air attacks or deliberate acts of sabotage. It may be more convenient for the would-be saboteur to operate as a computer hacker, breach the digital infrastructure and plant a logic bomb in the computer systems controlling the electrical generators. In fact, the most notable deployments of logic bombs included any computers that operated electrical generators. The Ukraine was a well-known target of this instance back in 2016:

A more disruptive type of time bomb occurred on December 17th of 2016 at 11:53 PM in Ukraine. This focused on high voltage substations. These were the substations that sent power between different locations within the country. And at this particular time, the logic bomb began disabling electrical circuits and bringing down electrical connections throughout the country.

The malware that had been installed had begun mapping out the controlled network of these systems and began disabling power at a particular date and time. This malware was customized to work with these SCADA networks. These are the supervisory control and data acquisition networks that are used to manage these types of electrical systems.”  

It should also be noted that the more mainstream conventional Cryptocurrencies become, the more control there will be exerted over their effects on national economies from the central banks. One important example involves the ongoing attempts by central banks to issue digital versions of their own currencies to negate the need for Cryptocurrencies. Whether people are going to be interested in such digital currencies remains an open question, however. And as of this year, at least fifteen nations have placed restrictions on personal ownership or have outright banned them. Russia did express an interest in regulating Cryptocurrencies within its own digital borders, but this was before the country decided to invade the Ukraine late last month:

“Instead of banning cryptocurrencies, the Russian government has decided to regulate them, legitimizing a $2 trillion asset class in the world’s 11th-largest economy.

A document setting the principles for the regulation of cryptocurrencies appeared on the government’s official website on Tuesday night. Notably, the plan has the support of the central bank, which had called for a ban on crypto mining and trading.

This is the second major regulatory cloud to have been lifted from the global crypto market in a month. India last week took a step toward legalization with a tax on digital asset transfers. While it carries a hefty rate (30%), the tax was seen by many as putting the fifth-largest economy on track toward legitimizing crypto.”

However, when Russia invaded the Ukraine, the Jeffersonians proceeded with levying Sanctions against them. The moment those Economic Sanctions were slapped against the Russians was when another fundamental flaw of Cryptocurrencies became apparent. Cryptocurrencies are ill-suited for evading Economic Sanctions. Last week, Coinbase blocked the transactions of 25,000 wallets owned by Russian nationals, the majority of whom are suspected to be engaging in criminal activities anyway. The FBI has also caught on to the Cryptocurrency craze, establishing their own criminal investigations unit devoted to the study and analysis of the Blockchain. While some of their expertise has been directed against Ransomware and Cybercrime, the FBI is expected to comply with the new Economic Sanctions on Russia.     

“U.S. Deputy Attorney General Lisa Monaco has announced that the Federal Bureau of Investigation will be increasing efforts to address enforcement in the digital asset space with the formation of a new team.

Speaking at the Munich Cyber Security Conference on Thursday, Monaco said the FBI was creating a ‘specialized team dedicated to cryptocurrency’ called the Virtual Asset Exploitation Unit. The unit will include crypto experts and as well as have the means for blockchain analysis that may eventually be used to track and seize illicit funds.

The formation of the FBI team comes more than four months after Monaco announced the launch of the Justice Department’s National Cryptocurrency Enforcement Team. The two will be working together to pursue actors who ‘abuse cryptocurrency to commit crime.’

‘Ransomware and digital extortion, like many other crimes fueled by cryptocurrency, only work if the bad guys get paid, which means we have to bust their business model,’ said Monaco. ‘The currency might be virtual, but the message to companies is concrete: if you report to us, we can follow the money and not only help you but hopefully prevent the next victim.’”

Liquidations of Russian-owned Cryptocurrencies have occurred in the Middle East, specifically in the United Arab Emirates. It is intriguing to find out that the UAE, a Middle Eastern country whose wealth was created from crude oil extraction and petroleum production, has gotten involved with Cryptocurrencies. This comes nearly a month after the UAE had decided to regulate the transactions of Cryptocurrencies within their own financial markets, imitating the regulatory measures employed in countries that have chosen to regulate it.

The following are two articles related to this phenomenon in detail. The first article is related to the news from last month about the UAE deciding to regulate Cryptocurrencies. Note that the UAE has chosen to employ a “licensing system”:

“The United Arab Emirates (UAE) is getting ready to start issuing federal licenses to virtual asset service providers (VASPs) by the end of the first quarter, Bloomberg reported Thursday, citing an unnamed government official.

The UAE’s Securities and Commodities Authority (SCA) is in the final stage of amending legislation to regulate VASPs. The government hopes that a nationwide crypto licensing system will attract big companies to the region.

The country completed a risk assessment of crypto assets late last year. The assessment involved 14 public-sector agencies and 16 private-sector entities. The government concluded that proper regulation, rather than an outright ban, can mitigate the risks of cryptocurrencies being used in illicit finance schemes.

The UAE official told the news outlet that the country’s crypto regulation takes into account the latest guidance from the Financial Action Task Force (FATF) as well as regulatory strategies used in the U.S., U.K., and Singapore.”

The other article pertains to the news about the massive liquidations of Cryptocurrencies by the Russians. While it is difficult to ascertain whether the “Russian clients” are associated with the Russian government or just concerned Russian citizens, it is still noteworthy to discover the UAE’s involvement here.

“Cryptocurrency firms based in the United Arab Emirates (UAE) have been hit with a flood of requests by Russian clients to liquidate billions of dollars worth of digital assets, Reuters reported on Friday.

One crypto executive claims to have received a number of requests from Swiss brokers over the past few days to liquidate billions in bitcoin (BTC), with not one of those requests being for less than $2 billion.

‘We have one guy – I don’t know who he is, but he came through a broker – and they’re like, ‘We want to sell 125,000 bitcoin.’ And I’m like, ‘What? That’s $6 billion, guys.’ And they’re like, ‘Yeah, we’re going to send it to a company in Australia.’’

Other Russians are looking to use their crypto to invest in property in the UAE, the report continued. Dubai has for years been a popular destination for Russians, and they’ve been among the top visitors and buyers of real estate there long before the Ukraine invasion began.

Many Bitcoin veterans, having seen these sorts of reports more than once, are taking the Reuters story with a big grain of salt. “Calling a hard fake news on this one,” tweeted Blockstream’s Adam Back Satoshi Nakamoto. Coinshares’ Meltom Demirors said: “This kinda feels like the 2018-2019 deluge of emails to [over-the-counter] desks about whales wanting to sell 10-100k slugs of BTC … Will believe it when the ticket gets printed. Until then, FUD.”

Yes, I am still convinced that Adam Back is definitely Satoshi Nakamoto. Rather than thinking of Kapital as the Incentive, why else would there be a whole mythology around Bitcoin? Why would anyone not want to establish a Cult of Personality centered on opposing the central banks for never bothering to ditch Fractional-Reserve Banking and Fiat Currencies? It just goes to show that Cryptocurrencies constitute themselves as ideological rivals to the Work-Standard more than anything.   

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