Crypto giants "forced" to participate in US sanctions against Russia, causing controversy over decentralization, highlighting the value of Bitcoin

In this Russia-Ukraine conflict, in addition to the huge crypto donations (accounting for more than half of the total donations), the sanctions involved in the crypto industry have also attracted widespread attention. With the United States announcing sanctions against Russia, crypto giants have now had to express their views. Unlike voluntary and active donations, participating in sanctions is against the genes of the crypto industry, so most of them are forced to participate.

First, centralized exchanges. U.S. Treasury officials explicitly asked Binance, FTX, and Coinbase to block sanctioned persons and addresses. According to Reuters, French Finance Minister Bruno le Maire said on Wednesday that the European Union is seeking to ensure that Russia does not use cryptocurrencies to circumvent sanctions imposed by the European Union. The EU currently freezes the assets of the Russian Central Bank and disconnects seven Russian banks from the SWIFT financial messaging system.

CZ said that despite media reports that the exchange will not sanction ordinary Russians and will not follow sanctions rules; in fact, at least Binance will abide by the rules of sanctions. Previously, Binance told Bloomberg that it has formed a dedicated global compliance working group, including world-renowned sanctions experts, and is taking necessary actions to fully comply with any sanctions while minimizing the impact on users. Coinbase said in a statement that it will not impose any blanket ban on transactions involving Russian addresses, but will block accounts or transactions that may involve sanctioned individuals or entities.

The Ministry of Digital Transformation of Ukraine sent formal letters to eight cryptocurrency exchanges, asking them to stop providing services to Russian users due to concerns that digital currencies are being used to evade sanctions. They are Coinbase, Binance, Huobi, KuCoin, Bybit, Gate, Whitebit and the Ukrainian exchange Kuna.

Kraken Co-founder & CEO Jesse Powell, the second largest compliant exchange in the United States, said that he understands Ukraine's request to ban all Russian user accounts, but we cannot freeze the accounts of our Russian customers without legal requirements. But the Russians should realize that such a request may be imminent. Powell, who has always been known for his outspokenness, also said that if we were to voluntarily freeze the financial accounts of residents of countries around the world that have unjustly attacked and provoked violence, the first step would be to freeze all US accounts. But in reality, this is not a really viable business option for us.

After the centralized exchanges, the DeFi world is not immune, especially those that have not yet achieved full decentralization or DAO form and still have corporate entities. In particular, companies with US entities need to strictly comply with the rules as soon as possible. The largest decentralized wallet MetaMask and Infura's parent company ConsenSys even caused an oolong incident.

According to Decrypt, in order to comply with the new US sanctions, Infura is blocking access to all IP addresses in Crimea and Eastern Ukraine, but due to a configuration error, Venezuela was blocked (now lifted). Currently, the blocked regions also include Iran, North Korea, Cuba and Syria.

Earlier, José Rafael Peña, who was identified as a former CoinDesk employee, said that Venezuelan IPs were banned from using Infura in Metamask because "it cannot be used in certain regions in order to comply with the law", but it can continue to be used after changing the node. Subsequently, MetaMask responded that Infura had an incorrect configuration this morning, but it has now been corrected. MetaMask relies on Infura as the default endpoint, but users can modify this setting as needed or in the event of any service interruption. We apologize for the interruption to people in the affected areas inadvertently.

OpenSea also said that we are deeply sorry for the artists and creators affected, but OpenSea must comply with strict policies regarding sanctions laws. We are a US company and comply with US sanctions laws, which means we must prevent people on the US sanctions list from using OpenSea.

In fact, the regulation of DeFi has a long history, which has also raised questions about whether it is truly decentralized. Earlier, Uniswap was under regulatory pressure and removed stock tokens from its front-end interface. An article from the Financial 40 Forum, which is closely connected with Chinese decision-makers, also pointed out that there is a group of stakeholders on the DeFi platform who are responsible for making and implementing decisions and exercising management or ownership functions. These stakeholders and the governance protocols they rely on are natural entry points for regulation.

If it is not a US company, can it not comply? If it does not comply, the power of the US's subsequent sanctions against companies in the crypto industry will be very terrible.

According to CoinDesk, in November 2021, the United States announced sanctions against the Russian exchange Chatex, saying that the cryptocurrency exchange "facilitated the trading of multiple ransomware variants." A few hours after the announcement, all American and European companies that Chatex had been relying on stopped working with it and cut off any communication. The list includes BitGo, which immediately froze Chatex's BTC, XRP and other wallets; blockchain analysis provider Crystal Blockchain, which Chatex uses for compliance; London-based KYC provider Sum and Substance; network service company CloudFlare; and even Google. Bulochnikov said the Chatex team lost access to their corporate email accounts and cloud services. The day after the sanctions, Chatex was no longer able to operate and fired almost all of its employees.

However, in this context, the true decentralized value of Bitcoin has once again been highlighted, triggering recent price increases, with a seven-day increase of more than 8% and even a single-day increase of 18%, setting a single-day record in more than a year in percentage terms.

Nigel Kusher, CEO of W Legal, told the BBC that for some Russian oligarchs and billionaires who are subject to international sanctions, the immediate problem they face is where to move their cash. They certainly don't want to move it to Russia, and buying Bitcoin is the only option. "No bank in the world will touch you except Russian banks, so where else can you put your money?"

However, Caroline Malcolm, director of international policy at blockchain analysis firm Chainalysis, also said that cryptocurrencies do not provide Russia with a panacea for evading sanctions: Like the traditional financial system, the cryptocurrency ecosystem can take steps to identify transactions from identified sanctioned entities. Chainalysis recently even found traces of hackers from coin mixing tools. A Chainalysis report recently found that Russian individuals and groups account for a "disproportionate share" of crypto-related crimes.

Industry insiders pointed out that although the crypto industry has decentralized genes, it has been closely integrated with Wall Street and regulators in the United States since 2020. Especially after China's comprehensive ban and the United States' full compliance, the capital, companies, and core personnel of the crypto industry are currently mostly distributed in the United States. Therefore, it stands out more in the US sanctions against Russia. In addition to the more prominent value of Bitcoin, this will also trigger industry reflection on whether the United States has caused the crypto industry to be too centralized and how to establish a more sound and more solid decentralized mechanism.