Russian sanctions: can you sanction Crypto?

Sanctions imposed by the UK and Jersey against entities and individuals in Russia and Belarus apply to cryptoassets (see the OFSI, FCA and Bank of England Joint statement ). Which leads to the question: When is an asset a cryptoasset?

The simple answer – which may not help a great deal – is that there is no simple answer. There are thousands of different types of cryptoassets out there. Some are known as cryptocurrencies, and these are simple enough to be defined a little further. Take the most well-known, bitcoin, which can be defined as a digital currency which can be sent from user to user over the Bitcoin network.

But then is begins to become more complex. Bitcoin is built on a blockchain, which is in effect a ledger keeping track of any transactions, so bitcoins need to be sent over that blockchain. But there is more than one blockchain ‘ledger’, such as Ethereum. Ethereum also allows for tokens to be built on its blockchain, so as well as exchanging ‘ethers’ (their version of bitcoin) you can construct other cryptoassets on the same blockchain. A piece of art built on the Ethereum blockchain sold for $69 million – although for the purposes of this piece it may be better to avoid discussions of art and any definition of NFTs (non-fungible tokens).

As units of value, bitcoins, or ethers, or any of the other units of value which sit on a blockchain are not backed or managed by a central bank or government. This gives them the advantages, or disadvantages, of being unregulated in the traditional sense. One of the original goals of cryptocurrency was to expand the access to the financial system to those barred from traditional banking access, which could include those trying to operate outside the financial mainstream, or wanting an alternative. Bitcoin was used to donate to Wikileaks when the US government pressured Visa and Mastercard to stop transactions to that organisation, and in Venezuela citizens attempted to avoid the rampant inflation of the bolivar by investing in Bitcoins.

But it has also been used to assist in money laundering, and would have obvious attractions to those subject to international sanctions. While there is online guidance to assist with determining whether an asset is a legitimate cryptoasset, it should be borne in mind that this method of exchange is only 13 years old, and as with anyone that age it may be wise to consider carefully whether what you are being told is likely to be reliable.

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