States Using Crypto to Circumvent Sanctions
Such actions have massive impacts on a country's growth. A study from the National Iranian American Council shows that the U.S lost export revenue worth more than $170B. The amount was export profit that it would generate between 1995-and 2012 through Iran.
The US-Iran sanction made thousands of people lose their job positions aside from the financial losses. Such economic restraints push countries and their respective authorities into the digital asset world. Below are countries that are using cryptocurrencies to go around financial sanctions.
Iran
Iran's involvement with crypto became apparent after the U.S enforced an economic hindrance on all imports and several financial bodies from Iran. As a result, the country saw a 70% drop in oil exports for almost a decade. These sanctions encouraged significant recessions coupled with civil unrest and unemployment.
Due to this reason, Iran sought to leverage Bitcoin mining to generate money. Mining, in the digital asset world, represents an exercise where miners take part in validating transactions in the blockchain.
However, the process requires adequate energy and computational power to solve complex algorithms. Despite mining being an energy-intensive procedure, Iran provided affordable power and acknowledged crypto mining as a legal exercise.
Statistics from the Cambridge Center for Alternative Finance show that Iran's overall mining rate was at 4.5% up until April 2020. Moreover, miners were using almost 600 MW in January 2021 to carry out the validation process.
Having a stable supply of energy and government recognition allows miners to conduct the procedure and sell their mined BTCs to the country's central bank. In turn, the Iranian government would use the mining proceeds to purchase imports and limit the effects of sanctions.
Venezuela
Venezuela is yet another country embracing digital currencies to get through its economic sanction. Today, the country is experiencing various challenges, ranging from inflation to a shortage in food/medical resources. As a response to the sanctions, Venezuela began to pursue the application of cryptocurrencies for internal and external trade.
Hence, it led to the introduction of Petro, an oil-backed virtual asset. Petro generated $735M in 2018 during its first presale fundraiser. The asset also expected billions of investments from external participants.
Venezuela's sanction with the US began when America limited the country's access to acquiring loans from abroad. Therefore, purchasing Petro was an effective strategy that could strengthen its devaluing fiat currency.
Airport taxes became another source of circumventing sanctions through cryptocurrencies. Under this system, Venezuelan airlines were required to make payments through an application known as Jetman Pay. The system would convert these airline taxes into BTC and send them to exchange reserves based in Russia and Hong Kong.
The exchanges can convert Bitcoin into dollars and finally deposit the amount in the government's accounts.
Thus, through Petro and airport taxes, Venezuela was able to mitigate the impacts of sanctions on its economy.
Russia
Russia's sanctions began to take effect way before its regional conflict with Ukraine. In 2014, the US distanced itself from engaging in any business with Russia after the Crimea conflict.
The sanctions affected oil manufacturers and several Russian banks at the time. Today, the ongoing tension in Ukraine is creating tighter sanctions on Russia's economy. Such trading restrictions are forcing Russia to examine the application of cryptocurrencies.
Insights from Coin Dance show a 260% increase in the amount spent to buy/sell BTC using Rubles. The data tracked this spending behavior from February 24th to March 22, 2022.
By mid-February 2022, the number of Rubles converted into Bitcoin was worth $14M. U.S Senator Elizabeth Warren claims that Russia could be using cryptocurrencies to lessen the sanction impact. Additionally, the high-profile senator suggested a crackdown on all Russian crypto transactions.
As tensions rise, Russia may stick to the virtual asset economy and ultimately save Ruble's value.
North Korea
Last on the list is North Korea which has diverse sanctions from the U.S and the United Nations. The sanctions are meant to inhibit the country from accessing finances that fund its nuclear weapon program.
In the recent past, America blocked multiple shipping firms that could potentially assist Pyongyang finance the missile programs. However, there were limited results in the sanctions since North Korea evaded the burden through cryptocurrencies. In 2018, a digital intelligence firm examined that the country earns almost $200M from developing and selling crypto.
It later converts these profits into fiat currencies. While the amount may not be sufficient to fund the programs, North Korea will still be able to remain on track with its arsenal plans.
North Korea's involvement in cyber-related activities is also becoming more visible. Going by Chainalysis' report, attackers from North Korea stole virtual assets worth $400M. The hackers leveraged a few tactics to obtain these assets successfully.
One method involved using malware to acquire funds from a platform's hot wallet. As an isolated country in the economic field, North Korea is applying digital assets to manage the sanctions enforced.
Conclusion
Sanctions aim to deliver disciplinary action against countries that break international norms. It mainly involves cutting ties with a country's trade to affect their decisions and actions. However, states are finding and pursuing different solutions, such as cryptocurrencies, to bypass sanctions.
Digital assets provide these nations with adequate income to sustain their economy during economic restrictions. Features such as privacy and decentralization also play a key role in the acceptance rate of virtual currencies.
Nonetheless, with issues such as volatility and cyber-attacks, determining the outcome of using cryptocurrencies may be difficult in the long run.